5 Pro Tips to Improve Your Credit Score
Ajay is now a victorious businessman who is into retail in DLF City, Kolkata. In his 20s, he held a lot of credit cards and defaulted payments on them, a lot of times. In recent times, when he applied for a working capital loan for his business from the State Bank of India to expand his retail outlet, he got out to know that his application cannot be approved due to his low credit score. So, the SBI CIBIL score check acted as a major barrier for this application to get rejected. Here’s why you must constantly make it a point to check your credit report to know your credit score and continuously improve it over time. Note that if you do not have any documents handy, still you can check your credit report through PAN by conducting a “CIBIL score check free online by PAN number”.
For the ones who are new to credit scores, here is a quick introduction to credit scores –
Credit information bureau limited or CIBIL is a company that was introduced in 2000. The credit bureau holds the responsibility of assigning a 3-digit numerical credit score to you as an individual depending on your past credit record. This involves payment and management of your loans, credit card dues and other important financial products. Nearly all lenders, may it be banks, NBFCs or digital use the credit score to determine your credibility as a borrower before sanctioning you the loan.
Moreover, a credit score even plays a crucial role in deciding the rate of interest fixed by the lender. When you hold an excellent to high credit score, you are most likely to enjoy a better rate of interest deals. In contrast, a low credit score equals a higher rate of interest and increased financial stress. So, it is important that you hold a high credit score when placing an application for a loan or any other credit options.
Here are some of the important ways to ameliorate your credit score and profile –
∙ Make repayments on time –
While this might sound very basic, it is one of the important elements. Ensure to cultivate the habit of making credit card payments and EMIs, before the deadline, like say, nearly 5 days before the actual due date. Make sure to set up the ECS withdrawal on your account so that the payments are done automatically, and you do not miss out on any of them.
∙ Do not carry plenty of credit cards –
There is zero arguments for the fact that the credit cards you use are indeed a massive source of convenience. However, instead of holding multiple credit cards in hand, you must ensure to stick to just 2-3 and not more for your daily usage. Just because financial institutions offer lifetime free credit card do not mean you will opt for all the card that is readily available to you. This is because, when you hold multiple credit cards, you witness the risk of missing out on the repayments or delaying the repayments.
∙ Do not apply for the loan with various lenders –
When you place an application for a loan with multiple lenders, every lender ensures to make it a point to fetch your report separately to know your credit score. Whenever the lender or any other lender strikes an enquiry, it gets reflected in your score. The more the number of hard enquiries, the lower will be your credit score.
So, it makes complete sense to avoid submitting multiple hard enquiries. Doing so would avoid creating any negative impact on your credit report. In contrast, when you check your credit score directly with a credit bureau or any authorised agency, it is looked upon as a soft enquiry and this does not negatively impact your credit score.
∙ Extend your credit limit if it is possible
A higher credit card limit keeps your CUR (credit utilisation ratio) low. This helps enhance your credit score substantially as credit utilisation is a considerable parameter in your credit score computation.
- Go for a secured credit card
A secured card is a blessing for you if you are one of those looking to enhance your credit score. This is backed by the fixed deposit and thus carries lower credit risk. Also, when you place an application for a secured credit card, financial institutions do not conduct any credit checks, thus it does not affect your credit score.
- Borrow just when it is thoroughly required
Presently, the market concerning loans is flooded with various lenders and an endless range of loan deals, making loan availability simpler than ever before. It is easy to get tempted and borrow an amount more than what you can afford. Always note that your EMI payments must not exceed 40 to 50 per cent of your thorough income.
What are the ways to ameliorate your credit score using a credit card?
Here’s how you can form or ameliorate your credit score with a credit card –
∙ Select a credit card that matches best your regular financial habits –
Before you apply for a credit card, you must conduct your own research. Consider your requirements and then compare the card terms that meet those requirements. To cross-check as well as compare your credit card deals, you can take the assistance of lenders or fintech companies’ features available on their portals.
∙ Ensure you pay the bill on time –
Missing out on payments is looked upon as one of the worst things that you may do to your credit score. A good and strong repayment history is crucial for future credit approvals and credit card limit enhancements, thus ensure to always make at least the minimum payment on your card before nearing the due date.
∙ Make sure to pay in full –
Paying only the minimum amount, though keeps you away from the burden of paying a higher amount, this will not save on the interest constituent. Paying in totality by the due date will. And you must not get into the habit of spending more than your repayment potential.