How To Improve Your Credit Score – Dos And Don’ts

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What is Credit Score: It is a statistical number based on your credit history, repayment habits and other financial data collected from the financial institution by the rating agencies. Your credit score is an indicator of your credit worthiness. This data is collected by the rating agency on the basis of Permanent Account Number (PAN – issued by the Income Tax Department in India) or a principal or unique identifier like SSN in USA. Each rating agency may prescribe different weight-ages for different parameters used to determine it. Generally, it ranges between 300 to 850 marks.

With the credit score check, the lender gets an idea about the chances of default by the borrower, if he is given a loan/credit facility. Higher the credit score, better are the chances of getting loans at cheaper rates. Hence it is important for you to check this before applying for a new loan or credit. A credit score below 600 is considered bad and generally financial institutions avoid lending to such individuals. You can also easily improve it by maintaining financial discipline. Little things or ignorance can seriously damage your reputation. By paying little attention to these small things, you can improve your credit score and avail affordable credit facilities.

To improve your credit score, you must follow the do’s and don’ts.

worth doing

1. Never delay the payment of installments due on existing loans.

2. Always pay credit card bills on time. If possible, use the ECS or Auto Debit facility on your card bill payments, so that there is no chance of missing the bill payment on the due date.

3. If possible, try to prepay the existing loans. Paying a little extra over and above the EMIs or installments due not only helps you reduce the interest outgo but also helps in improving your credit score.

4. Maintaining a good and long banking relationship with the existing banker helps you in increasing your credit score. Changing your banker frequently, especially business related credit facilities, can bring it down.

5. Also pay your utility bills like electricity, mobile, insurance premium, municipal tax etc. on time. Although these are not directly reported for credit score checks, they help you maintain a financially disciplined life.

what not to do

1. Do not take different loans from different banks. Try to utilize maximum credit facilities from one or two banks. For example, you have two home loans, two car loans and one personal loan from different banks. This type of arrangement will lower your credit score. Try to transfer all these five loans to one or maximum two banks.

2. Do not transfer credit card balance from one card to another. Rotating balance from one card to another means, you do not have the means to pay the credit card bills. This seriously damages your credit worthiness.

3. Do not fully utilize or overuse the credit card limit. If you regularly exceed the 90% limit, ask the credit card issuer to increase your credit limit.

4. Do not close your old credit card without any reason or because you have taken a new card. The longer the credit history with regular bill payments, the better the credit score.

5. Don’t have too many credit cards from different banks. Maintain maximum 3-4 cards with same number of banks. If you use these cards regularly and pay card bills on time, your card company will be happy to increase your card limit.

6. Do not withdraw cash from credit card through ATM unless it is an extreme emergency. Frequent cash withdrawals from a credit card account reduce your creditworthiness, instead use a debit card linked to your savings account for cash withdrawals.

Try to get your credit score sheet once a year so you know where you stand. If you find any error in the transaction reported on your sheet, immediately report it to the concerned financial institution for rectification and update it with the rating agencies, especially when you plan to take a new loan/credit facility Have been

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