Your credit score is one of the most critical indications of your financial health. It enables lenders to judge you at a glance. The better your score, the easier you will find your loan and credit approvals. A higher credit score can also open the door to the lowest available interest rates when you borrow. CRIF – one of the RBI authorized credit bureau in India – presents you with seven proven ways in which you can improve your credit score.
Make prompt credit repayments
Keep your payments timely, your credit behavior tells a lot about your potential financial situation. From a lender’s perspective, established history of timely payments is a good indicator that you’ll handle future debts responsibly too. Late payments, defaults, repossessions, foreclosures, and third-party collections, not only reflect very badly on your credit report but also drastically pull down your credit score. If you have been irregular in your payments until now, no need to overthink, you can start improving your behavior right away.
Control your credit utilization ratio
The credit utilization ratio is the ratio of your credit limit and your credit spendings. This ratio should be kept under 30% going down to a good 10% or less. After payment history, it’s the second most important factor in FICO credit score calculations. For instance, if you have a credit limit of 60,000/-, you should limit your spendings to under 18,000/- and repay it back at the earliest. The date on which your credit issuer reports to the credit bureau also matters here. The higher that ratio, the fewer points you’re going to earn in that category and your scores are absolutely going to suffer. If your utilization ratio is exceeding 30%, try asking for a credit limit increase. Raising your credit limit can help your credit utilization, as long as your balance doesn’t increase simultaneously.
Limit your credit inquiries
By Inquiries, we mean loan or credit card inquiries. As such there are two types of inquiries recognized by credit bureaus – soft inquiries and hard inquiries. Soft inquiries are those which an individual does when they request their credit report or credit score from a credit bureau. It can also include credit checks done by financial institutions with which you already do business, and credit card companies that check your file to determine if they want to send you pre-approved credit offers. This type of inquiry is harmless. Hard inquiries, on the other hand, are those made by lenders when you apply for a new credit card, a mortgage, an auto loan, or some other form of new credit. They can affect your credit score—adversely—for anywhere from a few months to two years. You can avoid hard inquiries by simply limiting your credit inquiries.
Don’t forsake your old accounts
The older your average credit age, the more ‘handsome’ you appear to lenders. When you clear your long-running loan, you may be excited to delete all traces of your credit history. However, these old traces are gold, especially when your payments were timely and complete. The same holds true for your credit card accounts. Having an account with a long history and a solid track record of paying bills on time, every time, are the types of responsible habits lenders and creditors look for. If you have an account with multiple late or missed payments, then work out a plan for making future payments on time. That won’t erase the late payments, but it can improve your payment history and improve your credit score going forward.
Keep a regular tab on your credit report
Keeping track of your credit score is not just a good financial habit, but also a safe one. In fact, the information in the credit reports will not only enable you to see all of your financial accounts in one place but may also help you spot signs of identity fraud or unknown transactions. You can also view your FREE credit report on the CRIF website once every year and get the later viewings at a negligible price.
Use a healthy credit mix
It is best to have a mix of both secured and unsecured loans in your portfolio. Instead of relying only on unsecured loans, like credit cards, you can avail of secured loans like a housing loan to even better this score.
Be patient and see your scores improve
Rome was not built in a day and neither was your credit score. After you do your best and follow all the good practices to improve the score, the best course of action is to wait and watch your score grow gradually but steadily. To monitor your growth, perform a regular credit check.