A credit score is a 3 digit numeric summary of the user’s credit history. It ranges from 300-900. A borrower’s credit score is generated from his/her credit report, which is a blend of the borrower’s repayment history, and other related activities and personal information. A good credit score can bring numerous benefits to a borrower, whereas a bad/poor credit score becomes the reason behind lost 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?
Listed below are some of the ways that can help a borrower increase or improve the credit score; however, if these ways are not followed responsibly, they can also decrease your credit score.
To increase your credit score, it is truly important not to miss out on any credit payment. Banks, lenders, or other financial institutions always check how reliable a borrower is when it comes to credit or loan repayment. Good repayment history is an indicator of how a borrower has performed over the years and how he/she will remain loyal to the same habit.
Credit utilization ratio
One of the most important practices to increase the credit score is to use the credit utilization ratio judiciously. It is recommended to use no more than 30% of the CUR out of the given credit amount. Using more than the recommended percentage of the CUR reflects the borrower’s dependency on the borrowed amount. In some situations, the borrower can request a higher CUR from the concerned 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.
An error-free credit report can help a borrower improve his/her credit score. Thus, it is advised to check the credit report thoroughly, at least twice a year. In case of any error, misinformation, issues, or comments in the credit report, it is wise to raise a dispute and get the issues resolved at the earliest. 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 outstanding way to increase credit score is to maintain or use the older credit cards for a longer duration or till it is feasible for you to manage them. An old credit card records your credit history and helps in building an improved credit score.
To achieve a good or improved credit score, a borrower must not do the following things-
Leaving outstanding balances
Partially settling the credit amount
Applying for new loans immediately after the rejection of previous loan application
All these factors impact the credit score negatively and can steal the chances of the borrower to acquire a number of credit opportunities. Thus, to eliminate such a situation, a borrower must do the following-
Set timely reminders for loan EMIs and credit card payments
Opt for the ‘auto-debit’ option
Settle the debt to a larger extent if you have good money flow
Take expert advice to get more clarity
Check your credit score
A borrower should check his/her credit score on a regular basis to get an overview of his/her credit performance. Checking the score offers dual benefits-
In case of a good credit score, a borrower must sustain or continue to improve it
In case of fair or slight fair credit score, a borrower MUST work hard on the credit report to improve it
Applying for a new credit cards
A borrower should not apply for a new credit card until or unless it is really necessary. Acquiring multiple credit cards simply increases the debt and burdens the borrower to pay off the credit on time. Additionally, if the payment gets missed or delayed, it can affect the borrower’s credit score. Thus, applying for a new credit card without any major use implies intentionally hurting the credit score.
To improve the credit score, it is important to maintain a balance between secured and unsecured loans. A healthy balance between both reflects the borrower’s responsible behaviour towards the management of both kinds of loans.