Updated on: 7 September 2023
Published on: 28 March 2022
Maintaining a strong credit score is crucial as lenders consider it an important element while extending credit. Why? Well, it provides important insights into your overall financial profile and ability to handle credit.
In case you have a low credit score, enhancing it is crucial to get access to various credit opportunities. Here are more details about your score and some effective tips to improve credit score.
A credit score is the numerical representation of your creditworthiness, and it ranges from 300 to 900. It is generated based on your credit repayment behaviour over a period of time. It is assigned to every individual who has availed of a credit product. A healthy credit score is between 700 to 900, depending on the credit bureau.
Generally, all lenders look at credit scores and credit reports before approving any credit request, be it for a secured or unsecured facility. You should strive to maintain a healthy credit score as it determines your borrowing capability. Maintaining a healthy credit score also gets you a lower interest rate on your instant loan.
Currently, there are 4 credit bureaus in India:
Each of these credit bureaus has its own algorithm to assign a credit score to every individual. Here is a table with different credit score ranges, which will help you understand your creditworthiness and chances of credit approval.
|Credit Score||Creditworthiness||Probability of Credit Approval|
|300-600||Very low||Very low|
Your credit score stands as an essential indicator of your financial well-being, providing lenders with an insight into how you manage credit. Having higher credit scores leads to easier and speedier approval of credit. It also assists you in securing favourable interest rates and loan terms.
You can enhance your credit score through consistent effort over time. Here are some tips that can help you improve credit score.
Your credit score heavily depends on your payment history, and making consistent and timely payments can lead to credit score improvement. The key is avoiding any missed loan or credit card payments. Ensuring timely payments of your loan EMIs and credit card bills enables you to achieve and maintain a healthy credit score over time.
When it comes to your credit card bills, you must either pay the full balance or an amount greater than the minimum due. Opting for the minimum due amount reduces your opportunity to enhance your credit score.
To enhance your credit score, it is essential to keep your credit utilisation low. This is because a lower credit utilisation shows lower dependence on credit. Therefore, keeping your credit utilisation ratio below 30-35% is ideal.
Consistently monitoring your credit report is a crucial step that helps you to improve your credit score. Checking your report at regular intervals helps you identify any discrepancies or errors in the report. Any such errors can negatively impact your credit score. Therefore, you must report these errors to the authorities as soon as possible. You can also learn to avoid financial habits that lead to a drop in your score.
There are 2 types of inquiries:
Reviewing your personal credit score falls under the category of a soft inquiry. Financial institutions conduct a soft inquiry when assessing you for a pre-approved loan. These types of inquiries do not have any negative effect on your score.
Conversely, a credit card or a loan application initiates a hard inquiry. A lender checks your credit score and makes the approval decision. Hard inquiries that occur on a regular basis can affect your credit score.
Applying for a loan from numerous financial institutions at the same time leaves a negative mark on your credit report. Having numerous inquiries for credit within a brief span can adversely affect your score. Therefore, unless essential, you must avoid exploring a multitude of credit options simultaneously.
Ensure you have experience with a combination of credit products since it influences your credit score. Therefore, having a healthy mix of secured as well as unsecured loans in your past record is key.
At times, it is not uncommon to encounter some mistakes in your credit reports, and these mistakes can lead to a lower credit score. Therefore, you must assess your score in advance, as rectifying the report at the last minute is difficult. This can help avoid rejections on your credit applications.
Also Read: Instant loan without credit score
Improving your credit scores depends upon the factors negatively impacting your scores and the measures you are implementing to restore them. Therefore, there is no fixed timeline for improving your scores.
In case you missed an EMI payment, you can boost your score quickly by repaying the due amount. On the other hand, if you miss multiple EMI payments in various accounts, the impact may be deep. In this case, credit score improvement will take time. Therefore, the most effective strategy to elevate your low credit score is focusing on timely repayments and keeping your credit utilisation low.
To conclude, consistently meeting your credit card and loan payment deadlines is essential for maintaining a positive credit score. Having multiple outstanding loans can negatively influence your credit score. Additionally, clearing your dues on time can help you avoid paying high-interest rates.
To increase credit score in 30 days, repay your dues on time, bring your credit utilisation ratio down to 30-35%, and avoid any new credit card or loan applications. Also, check and monitor your credit report to report any errors that can negatively impact your score.
The fastest way to achieve credit score improvement is by focusing on making consistent and timely payments of your loan EMIs, credit card bills and clearing other dues. You must also try to keep your credit utilisation ratio between 30-35%.
Yes, boosting your credit score to 700 in 30 days is possible. For this, you must pay your existing dues and your credit card bills in full. Keeping your credit utilisation between 30-35% is also essential. Also, remember to check your credit report and dispute inaccurate information, if any.
The top 3 ways to increase credit score are paying EMIs on time, paying credit card bills in full by the deadline and keeping your credit utilisation low.
You can quickly improve your credit score by clearing all existing debt. However, remember that scores take time to improve, and you may want to give yourself around 6 months to see an improvement in your credit score.
Category : Loan Management Tips
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