“How to boost my credit score?” is the first question every potential borrower should ask themselves before they even apply for a loan. This is because a high credit score increases the likelihood of loan and credit card approval, whereas a low score makes obtaining credit more difficult and results in higher interest rates. Credit scores are based on a person's credit report, which includes their repayment history as well as other financial and personal information. Credit scores are important to understand and monitor because they can affect creditworthiness and lending terms. This blog will provide tips on how to increase credit score quickly. Before that, let us learn a few things about how your credit scores work.
Credit Bureaus – The Agencies That Identify Your Financial Worth In Numbers
The Reserve Bank of India has licensed four credit information companies in India, Credit Information Bureau (India) Limited (CIBIL) is the foremost among them. The CIBIL credit score ranges between 300 and 900, where 900 is considered the highest possible score and 300 the lowest. An algorithm calculates your credit score by taking several factors into account. In the calculation, each factor is given a different weightage.
The factors under consideration include the following:
- Your debt repayment history across categories (such as loans and credit cards)
- Your total credit limit
- balance between secured and unsecured loans.
- Number of loans and credit cards you have
Your credit score assesses your ability to manage debt. The higher your credit score, the more responsible you appear to lenders.
What can a good credit score get you? Better loan terms and easier approval are the most straightforward solutions. Most people will save hundreds of thousands of dollars over the course of their lives if they have a good or excellent credit score. Someone with good credit gets better rates on mortgages, auto loans, and other types of financing.
Individuals with higher credit scores are considered lower-risk borrowers, and more banks compete for their business by offering lower interest rates, fees, and perks. Those with poor credit, on the other hand, are considered higher-risk borrowers, with fewer lenders competing for them. Now that you understand the importance of a good credit score, the next best question to ask yourself is “What is the best way to raise my credit score?”.
10 Best Strategies You Can Follow To Help Increase Your Credit Score
The methods below can assist a borrower in increasing or improving their credit score.
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Repayment history
To keep a good credit score, you must make all credit payments on time. Financial institutions, such as banks and lenders, look at a borrower's repayment history to determine their dependability and commitment to repaying debts. Missed credit payments can lower your credit score and make it more difficult to obtain future loans or credit. -
Credit utilisation percentage
Using the credit utilisation ratio wisely is one of the most important practises for improving credit. It is generally advised that you do not use more than 30% of your available credit. Using a higher percentage of your CUR may signal to lenders that you are heavily reliant on borrowed funds. Even if you can get a higher CUR from a lender, it is still a good idea to keep your credit utilisation ratio at or below 30%. This can help you keep your credit score high and make it easier to obtain loans or credit in the future.
Also Read: How to Increase Your CIBIL Score Above 800
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Do not conduct multiple hard inquiries.
When a borrower applies for a loan, lending institutions conduct thorough investigations. If these inquiries are made in a short period of time, they can have a significant negative impact on the credit score. However, if they are spread out, they have less of an impact on the credit score. If your credit score suffers, it may result in loan applications being denied, which will be recorded on your credit report. To avoid becoming trapped in a cycle of hard inquiries, rejected loan applications, and negative credit report entries, it is recommended that existing loans or credit payments be paid off before applying for a new loan or making an inquiry.
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Repair any flaws
A borrower's credit score can be improved by ensuring that their credit report is accurate. It is recommended that the credit report be reviewed at least twice a year to identify and correct any errors, misinformation, or other issues. If there are any incorrect or disputed items on your credit report, you should file a dispute as soon as possible to resolve the issues. Incorrect information on a credit report can have a significant impact on a person's credit score.
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Card upkeep
Maintaining your older credit cards for an extended period of time, or until you feel comfortable managing them, is an effective strategy for improving your credit score. A long credit history with an old credit card can help you demonstrate responsible credit usage and contribute to a higher credit score.
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Examine your credit score
Borrowers should review their credit score on a regular basis to gain a better understanding of their credit performance. This has two advantages. To begin, if a borrower has a good credit score, they should work to keep it or improve it. Second, borrowers with fair or slightly poor credit should work hard to improve their credit report.
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Obtaining a new credit card
Applying for a new credit card is generally not advised unless absolutely necessary, as doing so can increase debt and make it more difficult to repay on time. Late or missed payments can also hurt a borrower's credit score. As a result, applying for a new credit card without intending to use it may harm your credit score.
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Ask for increased credit limits.
When your credit limit increases while your balance remains constant, your overall credit utilisation decreases, which can help you improve your credit. If your income has increased or you have more years of good credit, you have a good chance of getting a higher limit.
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Examine your CIBIL report on a regular basis.
This is the most important factor influencing a person's credit score. One can review his or her credit report to look for inaccuracies or misinformation. If there is a name discrepancy or a changed address that has not been updated, one can file a dispute and have the issue(s) resolved. This practise will help you improve your CIBIL score.
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Do not close old accounts
Closing old accounts or credit cards is never a good idea because it shows your long association with the banking institution and your long repayment history with it. Closing old credit cards or accounts invalidates your previous record with the bank, lowering your credit score.
Summary
By implementing these strategies, you can boost your credit score and increase your chances of being approved for a Home Loan with favorable terms.