Simple Steps to Elevate Your Credit Score

An individual’s credit history of borrowing and repaying money is recorded in their credit score. A high credit score allows people to borrow money at reduced interest rates and to be qualified for any type of credit they might need. Banks and financial institutions consider credit scores thoroughly before they extend any kind of credit to individuals.

A good credit score can be beneficial in a lot of ways. For example, it might help you get a more manageable loan for your next big purchase or ensure that the interest rates are not too high when applying to different banks and companies for loans altogether. To improve your credit score, there are some things you need to do, like paying back any outstanding debt on time and having a consistent payment history, which will eventually raise how favorable lenders see them! So if this sounds interesting, read more about these tips here.

What is a Credit Score?

A credit score is a three-digit number determined by a borrower’s credit history. The credit score provides an overview of a person’s financial stability. Simply put, a credit score is like a grade showing the banks how responsible you are with borrowing money and paying it back. The higher your credit score, the more likely you will get loans or credit cards with better terms, like lower interest rates. Your credit score is based on paying bills on time, your debt, and how easily you’ve been using credit. A good credit score is essential to borrow money when needed quickly.

Credit reporting agencies provide credit scores, such as CIBIL, Equifax, Experian, and CIRF Highmark. Individuals are graded on a scale of 300 to 900, with 300 representing the lowest score and 900 representing the highest. The higher the credit score, the better the chance of obtaining loans and credit cards.

How is Credit Score Calculated?

A credit score is calculated based on several factors, including payment history, the amount of debt you owe, the length of your credit history, new credit accounts, and the types of credit you use. Major reporting agencies like Equifax, Experian, and Transunion use this method to assess an individual’s financial responsibility and evaluate whether or not they should have additional or fewer privileges when borrowing from financial institutions.

35% payment history
30% amount of debt owed
15% length of credit history
10% of types of credits used
10% new credit

Tips to Improve Your Credit Score

By Paying Outstanding Bills on Time

A person can maintain a good score by paying their outstanding credit card bills on time. The repayment history of a borrower plays a vital role in calculating the credit score. Late payments affect an individual’s credit report and result in a low credit score. Late payments make the borrower liable to pay additional charges as a penalty on their loan amount. Timely repayment of the credit balance in monthly installments helps an individual to maintain a good credit score.

Learn here: What Happens If You Delay Your Credit Card Payment?

Examine Your Credit Reports

By examining and reviewing the credit report occasionally, an individual can improve his credit score. A person can assess these reports from credit reporting agencies, viz CIBIL, CIRF Highmark, Experian, and Equifax, to analyze and evaluate the factors affecting their credit report and make necessary amends. A credit score is provided to an individual based on the credit report. Hence, reviewing and rectifying any errors or mistakes in the credit report becomes critical.

Credit Utilization

Credit utilization is a way of measuring the individual’s credit and how much they use. If an individual has low dependence on their credit, then it would be safe to say that they have a high reliance on other sources like savings or investments when buying things for themselves; as opposed to someone who needs more money than what they can afford with cash where this might seem risky but also necessary. For example, a credit card issued with a credit limit of Rs 1 lakh and the amount spent by the individual using a credit card is Rs. 40 thousand. The credit utilization in this scenario will be 40%. Credit utilization of 30% is considered optimum for a borrower. The borrower can also maintain a good credit utilization ratio by increasing their credit limit and lowering their credit usage.

Mixing Credit

By creating a healthy mix of credit between secured and unsecured, loans a borrower can improve his credit score. Diversifying and maintaining credit between various forms helps build a good credit profile. It makes it cheaper for the borrower to obtain loans.

By Maintaining Old Accounts

By maintaining an old credit account, an individual can create a long Credit history. People often deactivate their old accounts after repaying their debts. Old credit accounts represent the credit history of individuals used to improve their credit scores. Closing a credit card account will also affect individuals’ credit utilization by lowering their available credit.

Debt Consolidation

Consolidating debt can also increase an individual’s credit score. Banks and credit unions provide debt consolidation facilities, whereby borrowers can consolidate all their outstanding loan amounts.