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Are you facing a loan rejection? Are you not able to get the best credit card deals? Well, it is time to improve your Credit Score! A strong score can help you qualify these financial needs. It will help you get low-interest loans, premium rewards on credit cards, loan negotiating power, etc.
The journey of rebuilding your score is a long process, it won’t happen overnight. You need to adapt good financial habits. Check your current score and know how much you’ve to grow. Follow these guidelines and begin building a strong credit score.
The higher the score, the better it is. There are four RBI-registered Credit Bureaus in India 一 CIBIL Score, CRIF High Mark, Experian and Equifax. Every bureau has its own credit scoring model. Typically, it ranges from 300-900.
Here’s how the Credit Score Ranges look like-
Your payment history is the most influential Factor. It is a reflection of your ability to pay back your loan EMIs and credit card dues effectively. Lenders want borrowers who are responsible and can repay all the payments on time.
Delayed payment and defaults build a bad payment history, which brings down your score. This may cause disappointment to lenders and they may reject your credit card or loan application. Hence, make payments on time. You can opt for an auto-debit option, wherein the stress to remember payment dates is eliminated.
Every credit card comes with a Credit Limit. The more you restrict your credit usage as per the given limit, the better it is for your scores. Ideally, it is suggested to stick upto 30-40% of the credit limit.
If your credit card balances exceed 30-40% of your credit limits then lenders consider this as ‘credit hungry’ behaviour, and may not lend you a credit in the future. In case, if the current credit limit is not sufficient, get in touch with your Bank and customise your credit limit based on your expenses.
So, keep an eye on your balances, and consider pre-paying some if you know you will exceed 30% this month.
Check credit score
There are two types of inquiries in your credit historyー soft & Hard Inquiry. A soft inquiry might include checking your credit scores or creditors checking your file before sending you pre-approved credit offers. Such inquiries don’t affect your credit score.
Hard inquiries can affect your score. This inquiry occurs when you apply for a new credit card, loan or other forms of new credit. An occasional hard inquiry may not affect your score, but too many inquiries in a short span can damage your score.
If you are trying to rebuild your credit score, it can be best to avoid applying for new credit for a while.
Another important way to improve your score is by reviewing your Credit Report. You are eligible for an annual free credit report by credit bureaus in India. There are four RBI-registered credit bureausーCIBIL Score, CRIF High Mark, Experian and Equifax.
You can avail a free credit report every year and start monitoring it to ensure all the information is accurate. If you come across any mistakes or discrepancies on your report, your score will reflect that mistake. You should immediately raise it to the bureau and get it rectified.
The older your credit age, the more responsible you might appear to lenders. The credit age determines how long you’ve maintained your credit accounts. Many people make a mistake by closing old credit accounts. Your credit history of old accounts has more weight, when you close them, you wipe out all the old history. This could knock a few points off your score.
For instance, if you’ve one credit card that’s 9 years ago and another card that you opened a year back, then your average age of accounts would be 8 years. If the 9 year old card closes, your average account age will decrease.
So, don’t close old accounts rather keep them on your credit file. This will lengthen your credit history, which will positively impact your scores.
The average age of a Good Credit history would be 5 years. If you have a short credit history, you could try to piggyback on a family member’s credit card if they have got a long & good history of on-time payments. See if they can add you as an authorized user. But, you should be responsible enough to use it well, as they would be responsible for any charges you make.
In case, if you’ve no history, it will take at least 3-6 months to see activities in your report. If you’ve recently got your first credit card, start making small purchases and pay on or before the due date. This will establish credit.
A secured credit card is a type of credit card where you make a deposit as Collateral. Ideally, these deposits are equal to your credit limit. Most creditors give a secured credit card with a bad score. You can take the option and build a good payment history by paying your dues on time.
If you Default on the payments on this card, then the deposit you made will be used to cover the balance.
If you want a loan or best credit card, then start building your score. A strong credit score is a goal to have. It makes your financial life so easy.
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