If you have good credit score, your chances of getting approved for loans and credit cards are far better than someone who has a poor credit score. It allows you to negotiate better terms and a lower rate of interest on loans. A score of 750 and above is generally considered good by the lenders. However, if your score is below this mark, you can still work on improving it.
To build a strong credit score, you need to show responsible credit behavior through repayments and new applications for credit. You should not show any signs of credit hungriness or excessive dependence on credit.
While there is no way to fix your credit score overnight, here are a few measures you can take to see gradual improvement in your credit score over a period.
Make timely payment of Loan EMIs and Credit Card Bills in full
When calculating your credit score, credit bureaus give maximum weightage to your repayment patterns and discipline in paying your dues. “Therefore, ensuring that you do not miss out on credit card dues or loan EMIs and paying the bills in full is extremely important. If you have too many loans and credit cards, it is advised to set auto-pay on one or more or set reminders for the due date on each. If you are facing difficulty in managing several cards, you can also consider debt consolidation,” says Radhika Binani, Chief Product Officer, Paisabazaar.
Moreover, you should always pay your credit card dues in full, instead of paying only the minimum amount due. Paying the minimum due may look like a convenient option but it can easily lead to a debt spiral as finance charges start accruing on your unpaid balance as well as on all your new purchases, until you clear the dues.
Avoid multiple hard enquiries
When you apply for a loan or credit card, lenders fetch your credit report from the bureaus to gauge your creditworthiness. This is considered as hard enquiry. If you make multiple hard enquiries in a short span of time, it can reduce your credit score significantly. Many applications for credit within a short period is a sign of credit hungriness.
Instead of directly applying for credit cards or loans from different lenders, you should visit online financial marketplaces to compare all the options that may be available to you.
Monitor the loans in which you are a co-applicant
When you become the co-applicant for a loan, you share the responsibility of servicing the loan along with the other applicants. As a result, you become equally accountable for missed payments or defaults. It is important to keep track of such loans to ensure that all co-applicants are paying their part of the EMIs, as non-payment by other co-applicants will also affect your credit score.
Do not breach your credit limit regularly
Breaching the credit limit on your credit cards regularly can also affect your credit score. Maxing out your cards frequently reflects a lifestyle dependent on credit and, as a result, can impact your credit score. If you think that the credit limit on your existing cards is insufficient for your needs, you should request a limit increase from your card provider. You can also apply for a new credit card to increase your overall credit limit.
Close DPDs if any but do not go for debt settlement
Missed payments are shown in the ‘Days Past Due’ section of your credit report. “If you have DPDs on one or more cards, you must try to clear the dues in full and make timely payment afterwards. If you are unable to pay the dues, the lender may offer you a one-time settlement wherein you are required to pay a part of the amount due and the rest is waived off. However, when you opt for settlement, you accept that you cannot pay the full outstanding amount and the same is reported to the credit bureaus. The credit account will be marked as ‘settled’ in your credit report and can considerably reduce your credit score and severely affect your ability to access credit in future,” informs Binani.
Building a good credit score and maintaining it is a continuous activity which needs regular monitoring. In addition to the above ways to build a good score, you should make a practice of checking your credit report every 2-3 months to ensure there are no errors in your report that might creating a negative impact. If you see that your credit score is being affected negatively consistently, then you must look out for the reason and rectify the same at the earliest to improve your credit score and make yourself credit ready.