Credit score has a vital role while applying for a credit card or loan. It is nothing but a three-digit number that shows individual creditworthiness to financial organizations or banks. To calculate your credit score, your credit history has been used, consisting of information like your payment history, number of the credit card being used, number of loans, etc. India has four main Credit information companies: CIBIL, Experian, Highmark, and Equifax.+
A good credit score enhances your chance of getting a credit card or a loan, but a low score ruins it. Banks do not prefer giving loans or credit cards to people with low credit scores because banks cannot trust them for money. If you get a credit card or loan even after having a low credit score, your credit limit will be low, or you have to pay a high-interest rate. So, to avoid this, it’s best to enhance your credit score.
Ways to Improve your Credit Score
There are various ways through which you can improve your credit score. Have a look at them:
- Go through your credit report
One of the vital things you must do for enhancing your credit score is to go through your credit report. By doing this, you can easily recognize all errors in your report. If there are any mistakes in your report, rectify them quickly. Because your credit score is calculated by using the information mentioned in your credit report, you need to make sure all reports are error-free.
- Make a payment of your outstanding bills.
When you have any outstanding credit bills or loans, you should pay them off as fast as possible to enhance your credit score. While calculating your credit score, your payment history is taken into consideration. When you have a history of delayed payments, your score becomes low.
One of the best ideas is activating payment alerts or an auto-debit facility to make sure that you always pay off your outstanding credit bills or EMIs on time. Also, never make the mistake of paying off only the minimum amount, as it will enhance your card’s outstanding balance. Instead, try to pay off the full bill to keep the outstanding bill low.
- Use of credit
It is another big factor that is considered during the calculation of credit score. The amount of credit available for you and how much you are using narrates your dependency on credit money.
Therefore, it is recommended that people keep their credit use below 30%. So, when you have varied credit cards, check how much money you are utilizing on your credit. Also, try to look for a credit card issuer who accepts various payments in one month.
- Never eradicate old accounts from the report.
Some people tend to remove their old accounts or deactivate their accounts with negative history from the credit report to make the report look good. Some people even remove their old debts after clearing them. But it would help if you kept in mind that this is not a smart move rather, it can harm your credit score.
So after paying off your debts, please keep them in your credit report as it shows your creditworthiness, enhancing your credit score.
- Plan your credit
For most of the people whose credit scores fall radically, they have not planned their finances properly. For instance, if you have applied for a lot of credit cards just for enhancing your credit limit but cannot pay your bills on time, you end up increasing your outstanding bill along with a delayed payment history and reduced credit score.
Also, when you apply for any unplanned loan, it leaves you in a bad financial state when you cannot repay them. Thus, you need to plan your credit well and apply for a credit card or loan only when required and make sure you will be able to pay the money that you borrow on time.
- Debt consolidation
If you have a lot of debts, you can use this for your benefit. You can take a debt consolidation loan from the bank or credit union. It would help if you kept in mind that you can pay your debt fast to lower your rate of interest.
Another way for consolidating credit card balance is through the transfer of balance. Some credit cards possess a promotional period where they charge 0% interest on your card balance. But the fee for the balance transfer will cost you between 3% to 5% of the whole amount.
Wrapping Up
When the matter is about enhancing your credit score, there is no one single solution that fits all. It is vital to remember that each person’s credit journey is different. While several factors apply to many consumers, they will not always affect everybody’s credit score in the same way.
