A strong credit score shows the borrower’s habit of repaying credit by the due date. As an outcome, a strong credit score offers various advantages to the borrower, such as lower interest rates, power to negotiate for credits, credit card limits etc.
What is meant by a credit score?
A credit score is a three-digit number computed by the CIC (credit information company) or the credit bureau, which summarizes your past credit background. Your credit score is the measure of your credibility as an individual or your potential to repay the borrowed amount towards the line of credit, loan, or credit card. It ranges anywhere between 300 and 900, and a credit score of 750 or above is looked upon as good, although this differs across credit bureaus. The credit bureau utilizes the info provided by the bank regarding your previous repayment history to predict the risk of you not repaying the future loan. An individual with a history of timely repayments will hold a higher credit score than an individual who has missed the repayment of a loan or credit card.
In India, there are 4 credit information companies or credit bureaus that are RBI approved –
∙ Experian
∙ TransUnion CIBIL
∙ CRIF High Mark
∙ Equifax
To attain a strong credit score, a borrower should adhere to such practices without fail. Note that in case of any CIBIL grievance, you must report to CIBIL directly.
Practices that impact your credit score in a positive manner
Before moving into factors that contribute to a strong score, it is crucial that you review your report completely. A report is a thorough compilation of the user’s credit history, personal information and other info, making it important for the borrowers to effectively review the report. Moreover, a report must be reviewed at least twice a year to gain an understanding of your financial health and the amount of effort required to attain the score.
After this, follow the steps mentioned below to ameliorate your score –
Resolve the report errors
An error-free report usually has a positive impact on a borrower’s credit scores. When the borrower gets a credit report, the initial thing he/she must do is to confirm all info contained in it. If an issue, error, comment, or any type of suspicious details are discovered, they must be reported to the apt authorities at the earliest. Additionally, false or old info, changes in the communication or address details of the borrower, unresolved queries, the number of various credit accounts and others must be checked at least twice and rectified if required. To resolve your credit report errors, close credit monitoring is crucial.
The procedure of the credit repayment
It is compulsory to repay the debt on time to attain a strong credit score. Even a delayed or single missed payment can hamper your credit score drastically, making it thoroughly challenging for you to regain your overall credit score. Thus, it is recommended to set reminders timely for loan EMIs as well as credit card due dates. Most essentially, the borrower must feel responsible for all credit repayments to enjoy the credit-linked opportunities in future.
Credit utilization ratio (CUR)
Use of CUR of up to the recommended percentage, i.e., 30 per cent helps you to attain a strong credit score. However, the opposite lower your credit score. A CUR of over 30 per cent out of the overall credit amount is addressed as overutilization of your credit limit. This demonstrates your dependency on credit to manage the expenditures making lenders, banks, and financial institutions sceptical of your potential to make repayment.
To avoid falling into a debt trap, it is advised that no more than 30 per cent of the credit utilization ratio must be utilized. Moreover, if your expenditure exceeds the acquired credit card limit, it is recommended to contact the relevant banks, lenders, or financial institutions to enhance your credit card limit.
Avoid submitting multiple credit card applications.
It’s recommended to avoid placing applications for a new credit card if you are working towards ameliorating your score. This is because a new credit card application or loan may make you generate multiple hard inquiries, which
may reflect your credit-hungry behaviour. As an outcome, the borrowers often end up with a rejected loan application, and this lowers your credit score.
Repay your debts
To attain a strong credit score, you must pay your debts timely and avoid settling for partial credit payments. Also, do not leave any outstanding balances. In the case of good cash flow in hand, try and settle for full repayment. In this way, you can prevent yourself from being overburdened.
Set reminders
Even while reminders are not directly linked to ameliorating your credit score, they play a vital role. A reminder reminds you about the due dates for your credit card payments and loan EMIs. This prevents you from missing out on your payment, which ameliorates your credit score.
Stay patient
It is important to understand that credit isn’t built or damaged in just a day, and as an outcome, attaining a strong score must not be expected overnight. Give yourself at least some time to review your expenditures, determine how you can manage them and how much credit you may require finishing a task, and the remaining will fall in the right place.
How long exactly does it take to regain your score?
There is zero fixed time period needed to regain the credit score. Everything gets decided by the user’s credit history and financial habits. It might take months, in case not years, to get back a strong credit score.
Is it possible for you to check your score for free?
Yes, you can definitely check your score for free by visiting any of the online lending marketplaces. These marketplaces provide monthly score updates.
What factors have a negative impact on credit score?
Factors that have a negative impact on your score are delayed or missed payments, constant hard inquiries and high use of CUR (credit utilization ratio), etc.
