9 Best Practices to Improve Your Credit Score

A credit score is a three-digit numerical summary of a person’s credit history. It ranges between 300 and 900. A borrower’s credit score is calculated using his or her credit report, which is a compilation of the borrower’s repayment history, as well as other related activities and personal information. A good credit score can provide numerous advantages to a borrower, whereas a bad/poor credit score can result in missed credit-based opportunities.

Besides, a credit score is not just important for a borrower but is also one of the key factors that help lenders, banks and financial institutions to determine whether or not to accept or reject the applicant’s loan/credit card request. In short, a credit score reflects the borrower’s financial health and becomes a key factor for credit lending institutions.

This blog will provide you with all the possible practices to get a good or improved credit score.

How To Increase Credit Score?

The methods listed below can help a borrower increase or improve their credit score; however, if these methods are not followed responsibly, they can also lower your credit score.

Repayment history

It is critical not to miss any credit payments in order to improve your credit score. When it comes to credit or loan repayment, banks, lenders, or other financial institutions always evaluate a borrower’s dependability. A good repayment history indicates how a borrower has performed over time and how committed he or she will remain to the same habit.

Credit utilization ratio

One of the most important practises for improving credit is to use the credit utilisation ratio wisely. It is recommended that you use no more than 30% of the CUR from the available credit. Using a higher percentage of the CUR reflects the borrower’s reliance on the borrowed amount. In some cases, the borrower may request a higher CUR from the lending institutions; however, even at that point, it is advised to keep the credit utilization ratio to 30%.

Do not make multiple hard inquiries

Hard inquiries are those that are made by the lending institutions every time a borrower applies for a loan. Such inquiries, when made after a gap, do not severely damage the credit score. On the contrary, when these inquiries are made within a small duration, they can damage the credit score highly.

Damaged credit score then results in rejected loan applications and rejected loan applications are filed into the credit report. Altogether, hard inquiries, rejected loan applications and credit reports become a never-ending loop to break. Thus, instead of falling into the credit trap, it is advised to pay off the acquired loan EMIs or credit payment before applying for a fresh new loan or making an inquiry.

Fix errors

A credit report that is free of errors can help a borrower improve his or her credit score. As a result, it is recommended that the credit report be thoroughly reviewed at least twice a year. In the event of an error, misinformation, issues, or comments in the credit report, it is best to file a dispute and have the issues resolved as soon as possible. It is important to note that any kind of incorrect information reflected in the credit report can damage the credit score dearly.

Credit card maintenance

Another excellent way to improve your credit score is to maintain or use older credit cards for a longer period of time or until you can manage them. An old credit card records your credit history and helps in building an improved credit score.

Be disciplined

A borrower must not do the following things in order to achieve a good or improved credit score-

  • Delayed payments
  • Missed payments
  • Leaving outstanding balances
  • Partially settling the credit amount
  • Applying for new loans immediately after a previous loan application has been rejected

All of these factors have a negative impact on the credit score and can reduce the borrower’s chances of obtaining a variety of credit opportunities. To avoid such a situation, a borrower must do the following:

  • Set timely reminders for loan EMIs and credit card payments
  • Select the ‘auto-debit’ option
  • Pay off the debt before the due date
  • Seek the advice of a professional to gain more clarity

Check your credit score

A borrower should review his or her credit score on a regular basis to gain an understanding of his or her credit performance. Checking the score has two advantages:

  • If a borrower has a good credit score, he or she must sustain it or continue to improve it
  • Borrowers with fair or slightly fair credit must work hard to improve their credit report

Check Credit Score

Applying for a new credit card

A borrower should not apply for a new credit card unless absolutely necessary. Acquiring multiple credit cards simply adds to the debt and makes it more difficult for the borrower to repay the credit on time. Furthermore, if a payment is missed or delayed, it can have an impact on the borrower’s credit score. As a result, applying for a new credit card with no intention of using it implies that you are intentionally harming your credit score.

Credit mix

It is critical to maintain a balance of secured and unsecured loans in order to improve one’s credit score. A healthy balance between the two reflects the borrower’s responsible approach to the management of both types of loans.

Check Credit Score

FAQs
Is a credit score of 600 considered good?
Credit scores ranging from 550 to 669 are considered fair. A good credit score ranges from 750 to 900.
What exactly is a good credit score?
A credit score of 750 to 900 is regarded as excellent.
How long does it take to improve one’s credit score?
There is no set time frame for improving a good credit score. Everything is determined by the user’s credit history and current financial habits. It may take months, if not years, to regain a good credit score.
What should you do if a problem is discovered in your credit report?
Raise a dispute and contact your lending institution to resolve or correct any errors in your credit report.
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