A good credit score reflects the borrower’s behaviour of repaying the credit amount on time. As an outcome, a good credit score offers numerous benefits to the borrower like negotiation power on the credit amount, lower rate of interest, rewards on credit cards, and the status of a good debtor.
To aim for a good credit score, a borrower must follow these practices without any fail-
Practices that Affect the Credit Score Positively
Before getting started with all the factors that contribute to a good credit score, it is advised to have a thorough look at the credit report. A credit report is the combination of a user’s credit history, credit activities, personal information and others, which makes it absolutely important for the borrower to examine the credit report. Besides, a credit report should be checked at least twice a year to gain an understanding of one’s financial health and how much effort would be required to achieve a good credit score.
Once done, proceed with the following steps to get a good credit score-
Resolve Report Errors
An error-free credit report impacts the borrower’s credit score positively. Upon receiving the credit report, the first thing that a borrower should do is to confirm all the details written in it. In case of detecting any error, issue, comment, or something suspicious, it should be reported to the concerned authorities as soon as possible. In addition to this, old/false information, change in address or communication details of the borrower, any initiated/unresolved queries, a number of credit accounts, etc. should be checked twice to rectify them, if required!
Credit Repayment Process
It is mandatory to pay off the debt on time in order to achieve a good credit score. Even a single delayed/missed payment can impact the credit score drastically, thereby making it challenging for a borrower to regain a good credit score. Thus, it is advised to set timely reminders for loan EMIs and credit card due dates. Most importantly, the borrower should feel responsible for all the credit payments to enjoy credit-based opportunities in future.
Credit Utilization Ratio
The use of credit utilization ratio till the recommended percentage (30%) helps a borrower achieve a good credit score. However, the opposite of it takes the score further down. Using the credit utilization ratio to more than 30% out of the total credit amount is said to be the over-utilization of CUR. This showcases the borrower’s dependence on the credit amount to manage the expenses, eventually making lenders, financial institutions, and banks sceptical of the borrower’s repayment ability. Thus, instead of falling under the trap, it is advised to use no more than 30% of CUR. Additionally, in case your expenses exceed the acquired credit limit, it is good to connect with the concerned banks, financial institutions or lender to raise the CUR credit limit.
Avoid Credit Card Applications
It is highly recommended to avoid applying for a new credit card or loan as long as one is working towards improving the credit score or immediately after the rejection of the loan application. This is because a fresh loan or credit card application results in multiple hard inquiries within a short span period of time, reflecting one’s credit hunger behaviour. Due to this, the borrowers often end up with rejected loan applications and a lower credit score.
Pay off the Debt
To achieve a good credit score, pay the debt on time, do not settle for partial credit payments, and don’t leave outstanding balances. In case of good cash flow in hand, try to settle full payment. This way, you can prevent yourself from being overburdened to a certain extent.
Set timely reminders
Though reminders are not directly related to improving a credit score, they still play a prominent role. A reminder reminds of loan EMIs and credit card payments due dates. This keeps the borrower away from missing out on any payments, thus impacting the credit score positively.
It is important to understand that your credit isn’t damaged or built in a day; thus, it should not be expected to achieve a good credit score overnight. Give some time to yourself, analyze your expenses, figure out how you can manage them and how much credit you require to fulfil the task and the rest will fall in place.