A strong credit score shows your habit of repaying the credit by the due date. As an outcome, a strong score offers various benefits to you, such as the power to easily negotiate credit amounts, avail good credit card rewards, and lower your interest rate and status of being a good debtor.
To attain a strong credit score, you must adhere to such practices without fail:
Practices that impact your credit score in a positive manner
Before you dive into all factors that contribute to an excellent credit score, it is advised that you crucially review your credit report. A thoroughly reviewed credit report is the compilation of your credit history, activities, personal info, and other crucial info, making it essential for you to assess your credit report. Moreover, a credit report must be reviewed at least twice a year to get an understanding of your financial health and the overall effort required to attain a strong credit score.
After this, follow the listed steps to ameliorate your score:
Resolve the errors on your credit report
Having an error-free report often has a positive impact on your score. When you receive your credit report, the initial thing the lender checks is your info contained in it. In the case of any issue, error or comment being discovered, it must be reported to the concerned authorities immediately. Additionally, false or old info, any changes in your communication details, unresolved or initiated queries, number of credit accounts and others can be checked twice and then corrected if required.
The procedure involved in credit repayment
It is necessary to pay your debt on time to attain a strong credit score. Any missed or delayed payment can affect your credit score negatively, making it extremely challenging for you to regain an excellent credit score. Thus, you must set a timely reminder for your credit card dues and loan EMIs. Most importantly, you must feel the liability for all your credit payments to make the most of your credit-based opportunities.
Credit utilization ratio (CUR)
Use of CUR (credit utilization ratio) of up to 30 percent is recommended to attain an excellent credit score. However, on the contrary, it reduces your credit score. Using the CUR (credit utilization ratio) of over 30 percent of your overall credit amount is addressed as overutilization of your CUR. It demonstrates your reliance on credit amounts to manage your expenditures, which makes lenders and financial institutions sceptical about your repayment potential.
To avoid this trap, it is advised that you use no more than 30 percent of your CUR. Moreover, if your expenditures surpass the acquired credit card limit, it is recommended to contact the financial institutions, relevant banks, or lenders to enhance your credit utilization limit.
Avoid placing multiple enquiries for credit cards.
It is extremely recommended to avoid placing applications for new cards if you are working towards ameliorating your credit score or not looking for credit application rejection. It is because new credit applications generate various hard inquiries that show your credit hungry behaviour. As an outcome, you often may end up with credit application rejection, which may reduce your credit score.
Repay your debts
To attain a strong credit score, ensure to pay your debts on time, not settle for partial payments and avoid leaving outstanding balances. In the case of a good cash flow, settle with a full repayment. In this way, you can easily prevent yourself from overburdening yourself to a specific extent.
Set timely reminders
Even while reminders are not linked directly with ameliorating your credit score, it plays a vital role. Reminders remind you of due dates for credit card payments and loan EMIs. It prevents you from missing out on payments, which ameliorates your credit score.
Ensure to be patient
It is extremely important to understand that credit cannot be built or damaged in a day. As an outcome, achieving a strong credit score should not be overnight anticipation. Ensure to endow some time to yourself to review your expenditures, decide how you would manage them, how much credit you would require for finishing your task, and the rest will fall in the right place.
FAQs (frequently asked questions)
How long does it take to regain a strong credit score?
There is zero fixed time period needed to regain a strong credit score. Everything gets determined according to your current financial habits and credit history. It might take several months, if not years, for you to regain a strong credit score.
Is it possible for you to review your credit score at zero cost?
To review your credit score, you can visit online financial platforms. These platforms fetch your credit score at zero cost. Note that you can fetch your credit report from such platforms only once a month at zero cost. In case you require more than 1 credit report in a month, you will require paying a fee. On the other hand, you can also fetch 1 free credit report per year from the concerned credit bureau. Note that the minimum CIBIL score for a personal loan is 750. Whether you apply for a loan through a bank or any other financial institution, having a good credit score enhances your chances of availing of a loan. Suppose for SBI personal loan CIBIL score requirement is at least 750. This is true for other financial institutions as well.
What scenarios have a negative impact on your credit score?
Parameters that have a negative impact on your credit score are a higher use of CUR (credit utilization ratio), delayed or missed payments, frequent hard inquiries etc.
What are the kinds of loans that impact your credit score?
The kinds of loans that impact your credit score may be divided into 2 categories:
∙ Secured credit option: Secured loans need you to provide security or collateral in exchange for loan proceeds. Mortgage loans, home loans, vehicle loans, life insurance loans, and car title loans are some of the examples of secured credit options.
∙ Unsecured credit option: Unsecured credit option does not require you to provide any collateral or security. You are offered such loans based on your credit score and various factors. Wedding loans, consolidation loans, festival loans, top-up loans, and home renovation loans are some of the important examples of unsecured credit options.