A good credit score reflects the borrower’s habit of repaying credit on time. As a result, a good credit score provides numerous benefits to the borrower, such as the power to negotiate credit amounts, lower rate of interest, credit card rewards, and the status of a good debtor.
To achieve a good credit score, a borrower must adhere to these practices without fail.
Practices that Affect the Credit Score Positively
Before diving into all of the factors that contribute to a good credit score, it is recommended that you review your credit report thoroughly. A credit report is a compilation of a user’s credit history, credit activities, personal information, and other information, making it critical for the borrower to review the credit report. Furthermore, a credit report should be checked at least twice a year to gain an understanding of one’s financial health and the amount of effort required to achieve a good credit score.
After that, follow the steps below to improve your credit score:
Resolve Report Errors
An error-free credit report has a positive impact on the borrower’s credit score. When a borrower receives a credit report, the first thing he or she should do is confirm all of the information contained within it. If an error, issue, comment, or something suspicious is discovered, it should be reported to the appropriate authorities as soon as possible. In addition, old/false information, changes in the borrower’s address or communication details, any initiated/unresolved queries, a number of credit accounts, and so on should be checked twice and corrected if necessary!
Process of Credit Repayment
It is mandatory to pay off the debt on time to achieve a good credit score. Even a single delayed/missed payment can impact the credit score drastically, 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 the future.
Credit Utilization Ratio
The use of a credit utilization ratio (CUR) up to the recommended percentage (30%) assists a borrower in achieving a good credit score. However, the opposite of it lowers the score. 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 demonstrates the borrower’s reliance on the credit amount to manage expenses, making lenders, financial institutions, and banks skeptical of the borrower’s ability to repay.
To avoid falling into the trap, it is recommended that no more than 30% of CUR be used. Furthermore, if your expenses exceed the acquired credit limit, it is advisable to contact the relevant banks, financial institutions, or lenders to increase the CUR credit limit.
Avoid submitting multiple credit card applications
It is highly recommended to avoid applying for a new credit card as long as one is working towards improving the credit score or immediately after the rejection of the loan application. This is because a new loan or credit card application generates multiple hard inquiries, reflecting one’s credit hunger behavior. As a result, the borrowers often end up with rejected loan applications and a lower credit score.
Pay off your debts
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 the full payment. This way, you can prevent yourself from being overburdened to a certain extent.
Set timely reminders
Even though reminders are not directly related to improving one’s credit score, they do play an important role. A reminder reminds you of the due dates for loan EMIs and credit card payments. This prevents the borrower from missing any payments, which improves the borrower’s credit score.
It is critical to understand that credit is not damaged or built in a day, and as a result, achieving a good credit score should not be expected overnight. Give yourself some time to analyze your expenses, determine how you will manage them, and how much credit you will need to complete the task, and the rest will fall into place.