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How to improve your credit score?
Your credit score is a reflection of your credit habits and is calculated on the basis of various parameters linked with your loans and outstanding debts e.g. paying loan installments on time, rolling over your credit card bills, utilisation of credit cards etc. When a bank or a financial institution is considering to sanction a loan/ credit card to you, the credit score is what poses your first impression to the bank. The bank can instantly gauge your behaviour as a borrower on the basis of this score only.
The credit score generally ranges from 300 to 900, wherein a higher score reflects better credit habits. So, an individual with credit score 800 may be better placed for a loan/ credit card than an individual with a credit score of 600. Further, some of the banks have also started linking credit score with loan features like better interest rates, preferential processing, waiver of processing fees etc.
Further, when the credit score is fetched, a credit report is also generated, which throws light on your credit profile viz. the nature of loans (including credit cards) held, overdue status, repayment history, credit inquiries etc. As such, it becomes important to maintain a good credit score.
Here are a few techniques to improve your credit score:
1. Paying Credit Card Bills/ EMIs on Time – Considering the fact that the recovery of the loans is of paramount importance to the banker, the tendency of the borrower to make timely payments on debts due assumes importance. As a responsible borrower, one must always stay committed to pay the credit card outstanding and loan EMIs on timely basis. Since the repayment habits also holds due weightage in the calculation of the credit score, a good track record of timely repayments will help you get a higher credit score.
2. Keeping a healthy debt profile with low outstanding balances – The banks get an idea of an individual’s reliance on debts through his credit report, as a healthy debt profile reflects a healthy money management. If a person is continuously exhausting the credit limit available but is paying only the minimum amount due, or paying the balances through EMIs, the credit score is impacted adversely. So, even while credit cards allow you to pay minimum amount due to avoid late payment penalty, one should always strive to pay off the entire outstanding.
3. Not Get Tagged as Credit Hungry Individual – Every bank and financial institution tends to check your credit report, every time you make a loan or credit card application. Further, each such fetch request also gets recorded in the credit report. Such information is shown along with the nature of inquiry made over previous period, which may differ as per the database through which credit report is being fetched, like CIBIL, CRIF, Experian, Equifax etc. If a high number of inquiries are getting shown in your credit report, you may be seen as a credit hungry and the banks may not be inclined to sanction you a fresh loan. This is considering the fact that repeated inquiries about loans/ credit cards may portray you as an individual having high reliance on debt and further, it may indicate that some of the financial institutions have also refused to sanction you a loan, thereby giving a warning sign to the banker.
4. Maintain High Proportion of Secured Loans – The credit score also gets impacted if you are having a high proportion of unsecured loans in your debt profile. An unsecured loan may carry a higher credit risk for the lender, as the lender may not have recourse to any security just in case you default. A secured loan also tends to carry a better repayment record, as the borrower has risk of losing the primary and collateral securities in case of default, which are typically higher in value as compared to the loan outstanding. A higher proportion of secured loans thus helps you maintain a better credit score.
These simple money management techniques may be easier said than done. However, practicing them on a continued and sustained basis over a longer period is your key for a better credit score and therefore access to more credit options and preferential credit facilities.
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