Money is used to purchase anything. But not everyone is wealthy enough to be able to do that. Further, at times people also avail of loans for tax purposes. For these people, there are bankers and financial institutions available. Because loans include some risk, most banks and financial institutions have certain criteria to assess a borrower’s ability to repay. This is why a credit score becomes important. Banks analyze credit scores to determine a borrower’s eligibility and worth as a borrower. Thus, borrowers need to maintain a high credit score.
Banks may deny you a loan or any form of credit (credit card) based on your credit score (if below benchmark). Your credit history includes the amount of money you have borrowed and whether repaid regularly. If your credit score is within the benchmark, banks consider you loyal and trustworthy, and when you have a poor score, banks don’t think you can repay the loan. Banks & financial institutions will be reluctant to approve loan requests if your credit score is poor because they believe you may struggle to repay the loan and may default.
Equifax, Experian, CIBIL, and CRIF are the four primary credit-scoring firms in India. The range of these scores is 300 to 900. Your chances of being accepted for competitive, lower-rate loans are increased if your score is above 700. This indicates that you have a great credit history and you have repaid the loans in the past regularly. A decent score falls between 600 and 700, whereas a low score is below 600.
Generally speaking, one needs to aim for a credit score of 700 or better to receive the greatest credit card and loan offers.
Thus, always ensure that your credit score is high before applying for a personal loan, house loan, or credit card from a bank. Most people are unaware that they may raise their credit ratings by taking a few easy measures. Let’s examine some fast ways to raise your credit score.
7 Strategies to Improve Your Credit Score
1. Regular Repayment of Loan:
Make sure you make your loan EMI payments on schedule. Debt repayment has a significant impact on your credit score. Not only will you incur penalties for late payments on your Equated Monthly Installments (EMIs), but your credit score will also suffer.
Prioritize debt repayment first if you want your credit card score to get better. If you fail to pay your EMIs due to forgetting rather than a lack of funds, set up an automated bill payment system to eliminate the stress of missing deadlines.
2. Make sure that your Credit Report is error-free:
As soon as you notice any inaccuracies, you should make sure that you address them by going to the official credit agency website. Keep an eye on your credit score and get frequent reports to look for any discrepancies. Banks may report wrong information which can be reflected in credit reports. As a result, inaccurate or out-of-date information has been added to your report. Even though you may have paid back a loan, the report may indicate that you still owe money.
This is the factor that might lower your credit score. Therefore, as soon as you see information or transactions in your credit report that don’t seem right, take appropriate action and report the issue within 30 days to get it fixed. It is advised to verify and examine your credit record and score at least once or twice a year because of this.
3. Keep a check on Borrowings and maintain your Loan Ratio in Control
Never avail of a loan or borrow money unless it is required. To do this, be careful to assess your income and spending regularly. Being careful with your money will help you cut costs and prevent unauthorized credit.
Generally speaking, you should limit the use of your credit card to necessities and make sure that your credit usage percentage stays below 30%. Let’s take the scenario where you own three credit cards. The first has a credit limit of Rs 1 lakh, the second has a maximum of Rs 2 lakh, and the last credit card lets you borrow up to Rs 3 lakh. This indicates that a total credit limit of Rs 6 lakh has been allocated to you for borrowing. You should never take out more loans than 30% of the total value of these three cards, or around Rs 2 lakh, at a time.
A low credit usage ratio often indicates to lenders that you utilize credit responsibly, which raises your credit score.
4. Maintain a balance between Secured & Unsecured Loans:
You should maintain balanced long- and short-term secured loans (like Housing loans and Auto loans) and unsecured loans (like credit cards, consumer loans, personal loans, etc.) to improve your credit score. The banks may reject your future loan applications if they find that you have applied for and been approved for too many unsecured loans.
5. Stay away from Frequent Loan Applications:
Lenders will request your credit report each time you apply for a new loan or credit card, and this information is kept on file in your credit report. Your credit score may suffer if there are too many of these inquiries made too quickly. Banks will assume that you’re desperate for credit and might not be able to make your debt payments on time.
Furthermore, your credit report will contain information about any recent loan or credit card rejections you may have experienced. Therefore, it is advised that you wait to apply again until your credit score has increased if you have recently experienced a refusal of this kind.
6. Keep an eye on loan repayments if you are a guarantor or co-owner to other loans.
Did you know that you are equally responsible for late payments if you are a co-borrower or guarantor on a loan? Thus, keep an eye on your co-signed, guaranteed, and joint accounts regularly. If your co-borrower/borrower fails to make payments, their failure to repay might also impact your capacity to obtain credit in the future.
Thus, you may make sure that your credit score rises in this way. Further, avoid offering guarantees to too many loans
7. Start with a Small Credit Card or Consumer loan (in case of No Credit History)
What if you don’t have any loan availed till now? In that case, your credit score will be -1. At times, banks don’t prefer -1 score as there is no credit history and no judgment of the credibility of the applicant. In that, you can avail small credit card or consumer loan and pay EMI regularly. Within a few months, your credit score will improve.
How long does it take to raise your credit score?
The length of time it takes to raise your credit score will rely on what factors are affecting it specifically as well as the actions you take to increase it.
If only one late payment lowers your credit score, you can recover it fast by keeping your account current and paying your EMI/s on time. The recovery procedure may take longer, though, if you miss payments on several accounts and let the situation worsen for more than ninety days. This impact amplifies further if your overdue payments result in foreclosure.
Negative marks will eventually lose their significance, no matter what the circumstances. After five to seven years, the majority of bad marks are eliminated from credit reports, and your credit scores stop being impacted at that time, if not before.
Therefore, if you want to raise your credit score and have a low one, use the strategies that were previously outlined to raise your credit score as quickly as possible.
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