A credit score is not just a three-digit number. It is a gateway to financial opportunities and stability. Your credit score plays a crucial role if you are dreaming of owning a house, securing a loan for a new car, or wanting to qualify for the best credit card rewards. The good news is that improving your credit score is easy and achievable with consistent effort in financial strategies.
To understand how to improve your credit score, you need to know what are the factors that influence it. These factors are your credit utilization, payment history, and how long you have maintained your account which can either work in favor of you or against you. Don't worry, improving a credit score requires a step-by-step approach which you can master with some patience and persistence.
In this blog, we will explore the practical and actionable ways to take control and improve your credit score. Here you will discover strategies that will empower you to build and maintain a good credit score.
A credit score is generally a numerical expression that shows how credit-worthy you are. The major factor that shows your credit score is how likely you make your payments on time. The score will depend on the information from your credit report which includes credit card companies you have dealt with, banks where you previously had loans, and anyone who has considered you for credit. At the time of borrowing, lenders may look at your credit score as an indicator of how responsible you are.
It is extremely important to know how to improve your credit score and keep up to date on your credit report. It will ensure that nothing fraudulent is going on in your name. Here is a breakdown of the average credit score range with their evaluation and what does it mean:
|
Credit Score Range |
Credit Score Evaluation |
What does it mean |
|
800+ |
Exceptional |
Your score is more than above the national average which shows the lenders that you are an exceptional borrower. |
|
740-799 |
Very Good |
Your score is above the national average which shows the lenders that you are a dependable borrower. |
|
670-739 |
Good |
Your score is slightly above average and some lenders will consider you to be a good borrower. |
|
580-669 |
Fair |
Your score is below average and some lenders might approve the loans to you with this score. |
It is a vital step to improve your credit score for achieving financial freedom and stability. It will show your creditworthiness which impacts everything from loan approvals to interest rates. Let's take a closer look at a few steps through which you can improve your credit score:
Making on-time and regular payments is one of the best ways to improve your credit score. Missing or late payments could cause your credit score to go down. Make sure to pay your bills before the due date. You can also set up automatic payments so you don't have to worry about any due bills. Just make sure that you have enough money in your account to cover them.
The amount you borrow should ideally be less than 30% of your available credit. That will be your credit utilization rate. The best thing to do is to charge only what you can pay off each month. So, if you use your credit card to buy any groceries, pay for gas, or whatever you need, make sure to pay it off right away. This will help you stay out of debt and build credit at the same time.
It is important to use 30% or less of your total credit every month. For example, if you are using $3,000 or more from your $10,000 credit limit every month, then increasing your limit to $15,000 to $20,000 will bring you below that 30% limit. This will show the lenders that you may have more capacity to pay the borrowed funds if you ever need it in the future.
The longer your credit accounts are open, the better it is to improve your credit score. This even includes the accounts you don't use that have zero balance. As long as they are open, they will be counted into the average age of your credit. It is not necessary to carry a balance for your credit score. However, don't be tempted to use a credit card just because your account is there.
Do not take loans from different lenders. Suppose you take a loan from three different lenders. All these lenders will then send an inquiry to a credit rating agency to ask about your score from Credit Information Bureau India Limited (CIBIL). Now these inquiries will affect your credit score as well. So be cautious with your borrowings and keep your outstanding loans minimum.
Learn More: Credit Card Vs Debit Card: Choosing the Right One
Credit score goes up and down all the time. You don't need to start panicking immediately if you notice a sudden drop in your credit score. The most common things that can make your credit score go down are as follows:
Your credit score can go down when you apply for a new loan, mortgage, or credit card. An inquiry will be filed every time you authorize someone else to assess your credit report. This will negatively impact your credit score for up to two years. It is not important to keep applying for credit cards, loans, or mortgages all the time.
Your credit score may go down if you recently closed your credit card. This may happen due to a few things. Firstly, your overall credit limit will increase and decrease your credit usage. Secondly, you are deleting your credit history. The biggest factor in your score is how long you've been using credit. Canceling your credit card will shorten your credit history.
Missing or late payments for rent and mortgage could cause your credit score to go down. Unfortunately, paying for rent does not always help improve your credit score but only goes down if you miss any payments. Luckily, some financial institutions like banks, are working to ensure that paying for your mortgage or rent doesn't affect your credit score.
Inaccurate information on your credit report like wrongly reported debts, unauthorized accounts, or incorrect payments can negatively impact and drop your credit score. By regularly reviewing your credit report and history can help you in improving your credit score.
Improving your credit score might be a time-consuming and difficult task but there are many reasons why you should make an effort to maintain your credit score.
To improve your credit score quickly, you must pay all credit card bills on time, and dispute any errors on your credit report. These actions are responsible for your financial behavior which will affect your credit score.
You can easily check your credit score through CIBIL. You just have to enter your details like name, PAN number, and date of birth. Once your identification details are verified, your credit score and report will be generated.
Yes, if you get a loan written off by a bank, or want to settle off any outstanding loan, then your credit score will go down. It will be best for you to pay off any outstanding loan in full.
An ideal CIBIL credit score ranges between 300 to 900. A score above 700 is good for applying for a secured loan at any financial institution. But, if you are planning to apply for an unsecured loan, then having a CIBIL credit score above 750 is perfect for you.
Yes, paying off any outstanding debt can improve your credit score especially if it lowers the ratio of your credit utilization. To maintain a longer credit history, it is recommended to keep your credit accounts open after paying off any debt.
Disclaimer: Finance Knock provides information from reliable and credible sources, but we encourage you to verify the details before making financial decisions. Although we strive to provide accurate information, we are not responsible for any decisions made based on our content.
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