Improve your credit score in 2024

Credit Score plays a vital role in determining the creditworthiness of an individual. Before determining whether or not to lend to an individual, the lender evaluates their credit score. A credit score also affects the loan amount and the interest rate payable on the loan by the borrower. In case if an individual has a low credit score, there are chances that the lender will reject the loan application or charge a higher interest.

What is a credit score?

A credit score is a 3-digit number that represents an individual’s creditworthiness. The lower the credit score, the harder it is to avail a loan or get a credit card. On the contrary, a high credit score can not only help in availing credit but also opens doors to attractive terms and conditions like higher credit limit, lower interest rates, etc. A credit score typically ranges from 300 to 900, 900 being the best score possible. Regulated lending institutions check the credit score of an individual when they apply for a loan. There are credit bureaus in India that provide credit scores: Credit Information Bureau India Limited (CIBIL), Equifax, CRIF High Mark, and Experian.

What is a good credit score?

According to TransUnion CIBIL’s website, you have higher chances of getting a loan approved if your score is close to 900. In general, a credit score of 750 and above is good. It is important to maintain a good credit score and be aware of factors that affect it. Factors like timely and full payment of credit card dues and equated monthly installments (EMIs) play a vital role in maintaining your credit score. If your credit score is weak, it may be largely because of missed or late payments and high credit utilization (Credit utilization ratio is the ratio of total credit used and total credit available). There are a few steps that can help you improve your credit score and enhance creditworthiness. Once you take these steps, it can take 3-6 months for the changes to reflect in your credit score. Here are the steps that will help in improving your credit score.

Assess Credit Report for Accuracy

Make sure that all the information on your credit report is accurate. A discrepancy in your credit report can harm your credit score. You need to review credit reports from all the four credit reporting agencies carefully and make sure the information is accurate. If you find any inaccurate, outdated, or missing information, you must raise a dispute with the concerned credit reporting agency.

Pay Your Dues on Time

Regularly paying your bills on time can help in raising your credit score within a few months. It is the easiest and the most simple way to improve your credit score. While a single late or missed payment may have a significant negative impact on your score. To make sure that you pay the dues on time, note down payment deadlines for each bill in your calendar or a planner. You can also consider enrolling for auto payments through your bank, lender, or personal finance apps to have the payments directly debited from your account in order to avoid any late payments.

Fix Your Credit Utilization Ratio

If the usage of your credit card account exceeds 30% of your credit limits, it can be perceived as a red flag. This implies that your credit score is suffering. Even though you pay off your balances every month in full and on the due date, it can reflect as outstanding in your credit report. This is because your creditor reports this information to the credit bureau once a month and the date when the information is provided could be before your due date. So, you can try and pre-pay some of the balance before reaching the due date. This will help in keeping you below the 30% mark every month.

Pay Down “Maxed Out” Cards First

If you use multiple credit cards, it is advised that you first pay down the card that is already maxed out or is about to max out the limit. This strategy may help in lowering the credit utilization ratio and positively impact your credit score.

Also read: Everything You Must Know About Sending Money Abroad

Build a Strong Credit Age

The longer you have a positive credit history, the better your credit score. According to most lenders, a good credit age is more than 5 years. You can do either of the two things if your credit history is short. One option: If a friend or a family member has a good and long credit history, use their credit card as a piggyback to be an authorized user. However, this is easier said than done as it can be challenging to find somebody who adds you as an authorized user. This is because if they do, they would be responsible for the charges you make on the credit card. Second option: Be patient and do not close any of your accounts. If you don’t have any history at all, you may take 3-6 months from the beginning date to see any activity getting reported on your credit reports. You can establish a credit history by taking a credit card, making small and affordable purchases, and paying the balance in full every month. Remember to use your credit card wisely. Or else, instead of establishing a credit history, it will get you caught in the web of debt.

Maintain Old Credit Cards and Don’t Close the Ones You Don’t Use

As mentioned above, credit history age has a significant impact on your credit score. It reflects your capability in handling credit. If you have old credit cards, you must maintain them and pay the full bill on time every month. Even if you do not use old credit cards anymore don’t close them. If you must close some then close the newer ones. Continuing to maintain your old credit cards helps in building a long and healthy credit history, which in turn improves your credit score.

Open New Credit Cards Only If It’s Necessary

Carefully analyze all other options and decide if you really need to open an additional credit card account. Because having too many open accounts that aren’t being used will only result in charges while giving you no major edge if you are trying to improve credit score.

Avoid Applying for Credit Too Frequently

The lender pulls up your credit report every time you apply for a new credit account. Every pull can be considered as a hard inquiry that lowers your credit score temporarily. Therefore, you must refrain from applying for too many loans or credit cards within a short period. You can keep these hard inquiries to a minimum by comparing all the different offers, and then applying to the lender that offers you the best deal.

Also read: 6 Best Countries To Study Abroad In 2023

Choose a Tenure in Which You Can Comfortably Pay the EMIs

As mentioned above, regular and timely payments help in improving your credit score. So, while taking a loan, it’s always considered safe to opt for a longer repayment tenure. This ensures lower EMI that can be comfortably paid, thus decreasing chances of default, delay, or skipping of your EMI payments.

Be Patient

Your credit score won’t improve overnight. It requires time and consistency. You have to improve your credit habits to improve your credit score. All the steps that are mentioned above are good credit habits that you need to develop to have and maintain a good credit score.

Conclusion:

In short, to improve your credit score, you need to maintain a healthy credit history through timely payments, management of credit accounts in a disciplined manner, and reduction of high outstanding amounts. You cannot fix your credit immediately, but with patience and consistency, you will succeed for sure.