Improve Your Credit Score: It is the statistical number that represents one’s creditworthiness. It is a measure of how well you have handled credit accounts in the past. After assessing one’s credit history by way of reviewing how he managed his past loans, credit card bills and other liabilities, credit rating agencies give a credit score that ranges from 300 to 900. A score above 750 is considered as decent enough for getting the loan applications approved.
So, while managing your personal finances, you must plan and execute it in such a way that your credit rating is as high as possible. So, how to improve your credit score? Below are certain important things one must keep in mind to maintain a very good credit score.
How to Improve Your Credit Score
1. Don’t make any defaults in repaying the loan dues on time:
Make sure that you honor the monthly loan installments due on time. The weightage given to payment history by most of the credit rating agencies is 1/3. So, remember that a bad payment history affects your credit score very negatively. While choosing your installments, select the one which is more pocket friendly. This ensures that the debt installments will not overload to negatively impact your credit history.
2. Ensure a low debt to income ratio:
It is a percentage calculated by dividing your monthly debt obligations (EMIs, credit card bills etc.) with your net income post taxes. It shows the total debt you owe in a month as a percentage of your monthly earnings. A lower debt to income ratios guarantees you a good credit rating since your debts are very low as a percentage of your income. So, try to maintain a low debt to income ratio.
3. Maintain a credit utilization ratio as low as possible:
Credit utilization is a ratio calculated by dividing your credit card balance (due) with the total credit limit available. Lower credit utilization means that you are not credit hungry and you manage the finances well.
4. Reduce the loan balances as low as possible much before going for rating:
In case you have some extra cash that you got through a non-regular source, try to foreclose the loan by paying off it in part/full. Having huge outstanding loan balances on your name will adversely affect your credit score. So, try to reduce the loan balances to as low as possible much before you go for a credit rating.
5. Maintain balance between secured and unsecured loans:
A healthy combination of secured and un-secured loan in your account is a symbol of very well balanced finances. This shows your experience and knowledge in handling loans.
6. Don’t make many loan applications in a short span:
In case of your loan application has been rejected; do not apply for it again with another lender immediately. First know the reasons for rejections and take some time to fix them. Whenever you apply for a loan, the lender will raise a credit rating request with your rating agency. This request has a direct negative effect on your rating. So, multiple loan applications in relatively short period will make you look “credit hungry” which will severely damage your credit score.
7. Don’t take multiple credit cards:
While you have one, do not apply for another credit card. Instead, negotiate with your credit card issuer to increase the existing overall credit limit which would also decreases the credit utilization relatively. Having multiple credit cards, each one carrying certain due balance will certainly damage your credit score.
8. Don’t get tempted by pre-approved personal loans:
Banks and financial institutions may lure you with their pre-approved personal loans. Don’t get carried away by them. Unless and until you have a genuine financial requirement, don’t accept them. If you needlessly say yes to it just because the bank’s luring offers, it may affect your finances badly at times.