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Improving Credit Score the Right Way

In today’s technology-driven world, you can access a loan in a matter of just a few minutes. Credit cards, too, have completely revolutionized how we access credit. However easy it may be to draw a loan or swipe a card, you must remember that every transaction you make impacts your credit score.

But what is a credit score? How does it impact your credit line? Should you be worried? Read further to answer all these questions!

A credit score is precisely a 3-digit rating that determines the creditworthiness of an individual - basically, how liable are you to pay back a loan taken in a timely manner. This score is calculated using an individual’s credit history, loans drawn, credit card usage, and other similar pointers, and assigned by a credit rating agency. In essence, a credit score truly reveals an individual’s ability to pay back and also is an insight into personal money management.

Remember, no transaction goes unnoticed. Every time you draw a loan, it is recorded and contributes to calculating your credit score, which can be any number from 300 to 900. The former reflects a poor credit score, while the latter is considered a very healthy credit rating.

Credit rating agencies and bureaus calculate credit scores. There are 4 credit information agencies/information companies in India – CIBIL, Experian, Equifax, and Highmark.

Why is a credit score important?

A credit score reflects banks, financial institutions, and entities, and your ability to pay back debt. Banks and institutions are wary of individuals that have a low credit score and usually refrain from lending to such individuals who pose a higher threat of non-repayment. A poor credit score, therefore, dilutes a lender’s confidence, making it difficult for you to obtain a line of credit.

Even if you manage to obtain a credit card or loan with a poor credit score, you may have lower credit limits and may have to also deal with higher interest rates! A low credit score, in every way, undermines your ability to get credit at fair pay and portrays you as a poor debtor.

But do remember, your credit score has nothing to do with your savings, salary, or investments. It is only a reflection of your debt activities and payment cycle.

So, what can you, as an individual, do to keep your credit score on track and improve it? Read below!

How to improve your credit score the right way?

Many individuals complicate credit scores. But that need not be the case with you. Follow a few simple steps, and you’ll see that maintaining a positive credit score is not that complex after all!

1. Pay your dues in a timely manner

A credit score, in the real sense, is a depiction of your credit history. It shows your ability to pay back any loans you draw. If you have a habit of drawing loans and not repaying them on time, you must be aware that this can heavily influence your credit score.

Most individuals do not keep track of their loans (including credit card expenses) and end up drawing more loans to repay their previous dues. This can not only tank your credit score but can also make it extremely difficult to draw loans later. Not to mention it is an unhealthy financial habit and can derail your financial future altogether.

Anytime you draw a loan, make sure you pay it back, and most importantly, on time. In a sense, if you draw a loan and pay it back on time, you help increase your credit score effectively.

2. Draw limited loans

Individuals often argue that if they pay back large debts, how can their credit score remain impacted? This is a flawed argument. Drawing too much credit, even if you manage to pay it all back on time, can negatively affect your score.

This is because the risk of default is high in such circumstances. Even one small slip or delay in payment of interest or closure of a loan has a lasting effect. This puts banks and other financial institutions on guard.

3. Keep a low credit limit

A credit limit can loosely be defined as the portion of the credit line available to you. Now how much limit you use can highly impact your credit score. Generally, it is advised to use less than 30% of your credit limit. In fact, high credit scorers use less than 10% of their limit.

Use IndiaLends to track your credit utilization by viewing your entire credit profile!

You may want to keep your balance low when the credit issuers pass your reports to credit agencies, who then use these reports to calculate your score. You can keep paying throughout the month or before monthly cycles to keep your limit low and in control.

4. Pay your bills on time

Most individuals underestimate the importance of paying bills on time and the impact it may have on their credit scores.

Did you know that late payments can remain on your credit reports for more than 7 years! Can you imagine how this can dramatically affect your credit score?

But the solution is simple – Pay your bills on time. This is the simplest way to keep your credit score stable. Paying back your credit card bills, EMIs, and loans drawn on time can help increase your score. If you miss a payment or your monthly cycle, it is recommended that you contact your credit issuer immediately and get your dues cleared.

5. Diligently check your credit reports for errors

Sometimes, it may happen that you follow all rules and pay your debts sincerely. And yet many have a low credit score! Now, this could be due to an error in your credit reports.

A simple error or mistake on these credit reports can pull down your credit score. For example, you may not have missed a payment cycle but, your credit report states otherwise. Or your details could have been mixed with another user and many such instances.

Now, you can dispute such issues with credit bureaus. Remember, you are entitled to free credit reports from major credit bureaus. If you feel that your credit score is not right, report it immediately.

6. Strategically plan your credit card usage

Credit rating agencies can sometimes use different models to arrive at a credit score. For instance, one credit bureau may not consider utility payments while calculating your credit score, whereas another credit bureau may take this into account.

So, knowing what impacts your credit score and how the agency that prepares your report operates can help positively impact your credit score.

7. Use verified credit cards

Your credit score can be impacted severely if you use unverified credit cards or secure loans from unauthorized entities /individuals. A secured credit card will report diligently to credit agencies and will not pass you an unsecured credit line.

IndiaLends is a verified credit card service provider and keeps your needs at the highest priority. Sign with us today!

8. Manage your debt

A common misconception is that drawing no loans could mean a positive credit score. This is not true. Not having a credit history could drag your score low. However, with a healthy mix of loans and credits, and their effective management, you can help build a good credit score.

Keep track of all your loans, whether hand loans, home or car loans, student debts, credit card bills, etc., to have a proper understanding of your financial status.

Consolidate your debts as much as you can and plan a way to effectively pay back all.

9. Keep all your credit records intact

Individuals often try to discard their previous credit records or deactivate accounts. The logically thinking here is that it will not reveal their past payment records, especially if they are in the negative. But this may not be a very wise thing to do!

Your past records form an important part of your credit history and having a clean payment history can shoot up your score. If you have paid up your loans or credit card dues previously, keep a record of them.

The takeaway

A credit score reflects your credit history and money management. It reveals your creditworthiness and ability to pay back debts. How and when the payback is done determines the credit score, as it directly affects the credit line you are eligible for.

By being disciplined and following the pointers mentioned above, you can effectively increase your credit score.