A credit score plays an integral role when you avail of a credit card or a loan from the bank. A credit score is generated by one of the 4 prominent credit information companies in India, CIBIL, Equifax, Experian and Highmark. The 3-digit number indicates the credibility or creditworthiness of the individual to the banks and other financial institutions. It is a key enabler to conduct financial transactions involving credit or borrowings.
How does maintaining a high credit score help?
A high credit score helps us to avail of credit from banks easily and provides us with the edge to avail of loans at competent rates from banks or financial institutions. Banks prefer to extend credit cards or loans to individuals who have a high score, it is a mark of trustworthiness. If you have a low credit score, then you may find it tough to avail of a credit card or loan from the bank. The bank may either reject your loan application or simply extend it at a very high rate of interest.
It is best to undertake initiatives which help you to improve your credit score. Here are means through which you can improve your credit score.
5 ways to improve your credit score
- Pay your debt on time:
If you already have debt, then ensure that you make payments on time. Any delay in paying your EMI could lead to a fall in your credit score. Debt management is not only integral for good financial health, it is highly important for achieving a high credit score. It is ideal to hold minimal debt commitments.
If you plan to avail of a loan, then it is ideal if you pay off the commitments that you already have and then avail of a fresh loan. At all given points you need to ensure that your EMIs are well within manageable limits and only a comfortable portion of your monthly budget goes towards such credit, without causing any stress to your finances otherwise.
- Pay outstanding credit card bills:
Not paying your credit card bills could be a cardinal mistake you committed while trying to maintain a good credit score. In fact, as a matter of convenience, people often pay only the minimum payable balance and not the entire credit card bill. It is important to always pay the bill in its entirety to keep your credit scores high.
It is also advisable to keep their credit utilisation under 30% at all given times, if you have multiple credit cards, then use them wisely and keep track of the quantum of usage. Ensure to avail of a credit card from an issuer who accepts multiple payments during a month.
- Keep track of your payment history:
Your history of financial payments and transactions is critical for your credit scores; people tend to close their old accounts or deactivated accounts and negative payment history in their quest to improve their credit score. This may not be relevant or even necessary. For financial institutions, it is also easily retrievable. Hence, maintaining optimal transparency is of utmost importance.
The most important aspect is timely payment of your EMI and outstanding credit card bills, remember to always pay your credit card bills in full instead of minimum balance. If you have multiple debts running, then you may choose to settle or pre-close your loan with any windfall income that you may have received, this will not only ease your monthly cash flow but will also improve your credit score. If you have more than one credit card, then it is best to surrender the additional cards and keep one that offers the best deals/offers as per your requirement.
- Limit the hard inquiries:
Soft enquiries are those that you or your employer may seek to conduct to ascertain the credit score. They are not intended for availing of any loan or credit card from any financial institution. Soft enquiries can be in any number and do not impact the credit score. Hard enquiries are made by financial institutions or banks where you have applied for a credit card or a loan.
Thus, it is wise to keep the hard enquires minimal, frequent hard enquiries may impact your credit score. Frequent hard enquiries are often seen as a signal of seeking money when you have financial trouble, hence, banks become extra conscious whilst extending credit to such individuals.
- Consolidate and manage your debt efficiently:
It is not ideal to hold too much debt, if you already have too many EMIs running simultaneously, then it is time you consolidate them. Try to pay off the one with the highest interest, if there is an option of pre-closure without additional charges then you could do the same. This will not only help you improve your credit score but will also simplify your life.
To Sum Up
Improving your credit score will enable you to borrow at competent rates, this, in turn, will help you pay your EMIs with greater ease. You can reach out to experts at Tata Capital to help you manage your debt efficiently and improve your credit score before availing of any loan.