How to improve your credit score
What is a Credit Score?
Credit score is a numerical expression that is based on your creditworthiness. It includes all the details of credit that you have acquired until now such as:
• No. of loans taken & their Value
• Loan repayment track - delayed or on-time payment or settlement of any loan
• It also contains your demographic & personal details like Name, Address, date of birth, Phone no. & ID numbers like PAN, UID, and Voter ID etc. submitted by you at the time of loan taken
But how is the credit score calculated?
Its calculation is based on:
Lenders such as banks and NBFCs use the credit score to value the potential risk posed by every customer. It is used to determine the eligibility to avail loans and credit limits.
Who provides credit score?
It is provided by the credit bureaus, which are CIBIL(the most popular & the oldest bureau in India), Equifax, Experian and Crif Highmark.
Your dream of taking a bike loan or any other loan depends on the credit score irrespective of the amount of savings with you. Therefore, it is important to know your Score.
How to Improve your Credit Score?
1) Pay Your Bills & loans on Time
Payment history is one of the major contributors to your credit score. Lenders always give a preference to the ones who have made their payments on time.
It includes not only credit card or loan payments but all other utility bills as well. Therefore, assuring timely payments can help build your creditworthiness.
2) Manage Your Debt
Loan balances, Credit card Balances and lines of credit affect your level of debt. Having too much debt, can cost credit score points and make it difficult to afford your monthly payments. Be conservative for credit you use at any given time i.e. Keep an eye on your credit utilization ratio. Lower the debt, easier to maintain a good credit score.
3) Limit Your Applications for New Credit
Every time you enquire for a loan, your credit score takes a hit. Credit enquiries do not count for more than 10 % of your credit score, but if you have a high credit score (say 800); you stand to lose many points (10 percent of 800 is 80). Therefore, be sure of the loan requirement before enquiring.
4) Maintain a diversified credit mix
Someone who has an auto loan, a home mortgage, and credit cards which are being managed well, will have a higher credit score than someone whose credit consists of one type of Loan only.
5) Watch Your Credit Report
Any Errors in record by banks and other finance institutions could end up on your credit report leading to a drop in your credit score. Identity theft and credit card fraud can also lead to inaccurate information on your credit report. Checking your credit report throughout the year lets you detect these mistakes sooner so as to correct them and maintain a good credit score.
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