Your credit score is more than just a number. The financial reputation of an individual plays a vital role in the decision-making process of banks and lending institutions when considering loan applications or credit card approvals. If you’ve ever been turned down for a loan or received unfavorable interest rates, even though you have a decent income, it’s likely that your credit score was not high enough.
It’s crucial to remember that a low score is not a lifelong condition. By developing responsible financial practices and exercising patience, you can gradually enhance your credit score and establish yourself as a trustworthy borrower.
Divide the task into smaller, more easily achievable components
Be prompt in settling your bills – consistently
Your payment history carries the most weight when calculating your credit score. Each late or missed payment on your credit card statement can have a detrimental effect on your credit score. Conversely, consistently fulfilling your financial commitments showcases discipline and reliability.
Take advantage of the reminder function on your phone or set up automatic payments to ensure you never miss a crucial due date. Even a single late payment can have a significant negative impact on your credit score. Being prompt is not just polite—it’s beneficial.
Prevent exhausting your credit card limit
It can be tempting to max out your credit card, particularly during special occasions or when facing urgent situations. Nevertheless, regularly maxing out your credit card suggests a lack of responsible credit management. It is advisable to maintain a credit utilization ratio below 30% of the total available credit limit.
For instance, if your credit card has a limit of ₹1,00,000, it is recommended to limit your monthly expenses to ₹30,000. If you often find yourself needing extra money, it might be worth asking for a credit limit increase—but make sure you don’t do it just to spend more.
Reduce the number of times you apply for loans and credit cards
Whenever you apply for a loan or credit card, the lender examines your credit report. These inquiries, known as hard inquiries, can have a slight negative effect on your credit score. Submitting multiple credit card applications in a short span of time can create the perception that you are seeking immediate financial aid.
Instead, conduct comprehensive research and apply only when you are absolutely certain of approval. If your application is rejected, make sure to understand the reason behind it before applying to other places.
Maintain a harmonious mix of credit
Relying on a single type of credit, like only credit cards or a single personal loan, doesn’t give lenders a complete understanding of an individual’s creditworthiness. A diverse credit mix includes both secured loans (like mortgages or car loans) and unsecured loans (such as credit cards or personal loans).
It shows that you can handle different types of borrowing in a responsible way. If you’re unfamiliar with credit, it’s recommended to begin with a small secured loan or a credit builder card to expand your credit history.
Check your credit report for errors
Yes, credit bureaus can make mistakes as well. An incorrect entry—such as a loan you didn’t take out or a payment marked as overdue when it wasn’t—can unjustly decrease your credit score.
It is recommended to periodically review your credit report, ideally once a year, to verify its accuracy and detect any potential problems. If you come across any errors, submit a dispute with cibil through their online platform. It’s completely free, and by correcting these mistakes, you can instantly improve your score.
It is advisable to refrain from closing any existing credit cards prematurely
You might think that shutting down an old credit card will simplify your financial affairs. Despite the potential negative impact on your credit score, embarking on a cross-country road trip can inadvertently reduce your average credit age, which can be detrimental to your financial standing.
If the card does not require an annual fee or is managed efficiently, it is more beneficial to keep it. Keeping credit accounts active and in good standing over an extended period of time helps build trust with potential lenders in the future. They recount a story of steadiness and reliability.
Spend more than the minimum amount
Choosing to pay only the minimum amount due on your credit card may seem convenient, but it won’t have a positive effect on your credit score. It leads to accumulating interest and keeping a high outstanding balance, which has a negative effect on your credit utilization ratio.
It is recommended to pay off the entire debt amount each month. If that’s not possible, try to pay as much as you can above the minimum. This not only improves your score over time but also prevents you from falling into a cycle of debt.
Keep a record of any accounts that are shared or jointly owned.
If you have co-signed a loan or have a joint credit card account, it’s crucial to understand that you both have an equal obligation to repay the debt. If the other person fails to make a payment, it can negatively affect your credit score.
It’s wise to monitor these accounts and stay informed about their current status. If any issues arise, you don’t want your credit score to be negatively impacted due to someone else’s mistake.
Have patience and stay resolute
Enhancing your credit score requires patience. It necessitates commitment, self-restraint, and resilience. The key point is to be mindful of your financial decisions and avoid making mistakes that harm your credit history.
Even if your credit score is not in the best shape currently, consistently making timely payments and reducing credit card balances can gradually improve your credit score within a few months.
In summary
Having a good credit score is your key to enjoying hassle-free and affordable credit options. Whether you’re in the market for a new home, a vehicle, or even aiming to boost your credit limit, having a strong credit score is essential. By following these uncomplicated yet influential steps, you can reclaim control over your financial situation and unlock opportunities for a more prosperous future.