Credit score, a three-digit numerical, is an important factor that lenders check when you apply for a loan or credit card. The eligibility is determined based on how much credit score you have obtained currently with your past credit activities. Irrespective of your current credit score, you can always take steps to improve from the current position.
People can be categorised into three types based on their credit standing. They are; (i) people who have never borrowed before and have no credit score (ii) people who have good credit score (iii) people who have low or poor credit score. Everyone will be falling under any of the above-mentioned categories. Let’s look at how we can improve the credit score from the current position.
Steps to Improve Your Credit Score
For different types of customers, different plans of actions need to be taken in order to improve the credit score quickly.
New to Credit
If you have not borrowed before from banks and NBFCs, you will not have credit score. When you check your credit score, the credit report may show your score as ‘NH’, meaning ‘No History’. As borrowing is mandatory for the credit bureaus to calculate your credit score, you can take steps to get your hands on your first credit.
Score Builder Loans
Understanding the needs of new to credit section of customers, most lenders have a loan product that helps such individuals avail credit and build credit score. Known as score builder loans, these are exclusively provided to new borrowers at attractive interest rates. The loan amount may be smaller as the intention is to give you the first experience in the credit world.
After obtaining the loan, within 3 to 6 months, your credit score will be generated by the credit bureaus. It will range between 740 to 750. On regular repayment, you can see a surge in your credit score. Never miss a payment to keep up a good credit score.
Credit card is one of the best ways where you can access your first credit and start building a good credit score. There are exclusive credit cards for first timers. Getting a credit card could be easier without credit score if you have good source of income. If you are a salaried employee and have a salary account, you can easily get a credit card from the respective bank.
Credit cards help you build a good credit history and thereby good credit score as well. Diligent usage and consistent on-time repayment in full can help you build a robust credit score quickly.
Peer to Peer Lender Loans
Apart from banks and NBFCs who provide loans to individuals who have not borrowed before. The application process is done online, and the loan status is declared within a day. You can avail this loan just from your mobile phone and start building your credit score quickly.
Good Credit Individuals
You may have recently started building your credit score and it is a good credit score. Now, you need to look for ways to improve your good credit score to excellent. Following are some of the ways to boost your credit score:
Make On-time Repayments
After getting your first credit score, you need to ensure that it is on the increasing track. Never miss a payment on your loan or credit card bill. A single late payment or default can have a negative impact on your credit score. Though you may repay the amount later, the negative act will be recorded on your credit report. It can always be viewed by lender while you apply for the loan. Hence, make on-time repayment to have a positive credit score all the time.
Have A Mix Of All Credit
Just a single loan may not be sufficient to improve your good credit score. The lenders would like to see how experienced you are with multiple credits. Having a mixture of both secured and unsecured credit can be viewed positively by the lender. Thus, the credit bureaus allocate a certain percentage of weightage on this parameter. If you have taken a personal loan, getting a credit card or a home loan can help you have a long credit history and mixture of credits.
Use Credit Card For Long Credit History
A lengthy positive credit history is one of the parameters that is considered in credit score calculation. Loans like personal loans, gold loans and home loans will have maturity period and your credit history will end after a particular period. But having a credit card can help you have lengthy credit history as it can be used lifetime unless you want to cancel it. Judicious usage of credit card and on-time repayments can help improve your credit score significantly.
Monitor Your Credit Health
You need to keep a track on your credit health by monitoring its updates. Check your credit score and credit report often to look for any errors. If there is any change on your score, get it notified through SMS alerts. If there are any errors, raise a dispute resolution with the lender and get it corrected from the credit bureaus.
Bad Credit Individuals
There are instances where you maintained a good credit, and all of a sudden it dropped due to sticky financial situations. It can happen to anyone. It’s time you look for ways to get out of such situations and improve your credit score. Following are some of the effective ways whereby an individual with a bad credit can improve their credit score quickly.
Debt Consolidation Loan
When you have multiple debt and paying multiple EMIs, it could have been hard to make the repayments without fail. As a result, your credit score may have dropped. In order to avoid this problem, you can take out a new loan and pay off other loans. You will now have a single EMI to be paid to a single lender. This is called debt consolidation loan. The biggest advantage is that on regular repayment of the loan, your credit score will improve significantly as you have already paid off other loans on a positive note.
Clear Your Past Dues
Not paying past dues can significantly impact your credit score. You may have ignored the multiple alerts from the lender on non-payment. As a result, the credit score is in bad shape and you are completely ineligible to get a loan in the future. By clearing your outstanding dues and being regular on your existing repayments can improve your credit score quickly, and you can get back on track to good credit health.
Additional Reading: Top 10 Tips to Improve Your Credit Score
Avoid Paying Minimum Due Amount on Credit Cards
Though paying minimum due amount on credit card bill may have no impact on your credit score, it can impact your utilisation ratio. Minimum due amount reduces your bill but increases your utilisation ratio which can impact your credit score negatively. Hence, it is recommended that you make full payment on your credit card bill each month.
Apart from the above-mentioned points, every individual must refrain from applying for multiple credits simultaneously as it can involve multiple hard enquiries which may impact your credit score. Keep your credit card utilisation ratio low to have a good credit score.
A good credit score is a gift of your excellent credit behaviour. It is important that you check your credit score frequently to keep tabs on your credit health. If there are any changes in your credit score, find out reasons by obtaining your credit report.