Are you wondering what is a good credit score? Well, a score is a 3-digit number that ranges anywhere from 300 to 900 and is populated depending on all your credit-linked financial transactions. Credit linked financial transactions are your loan EMI and credit card bill repayments. Lenders, i.e., financial institutions and banks, review your credit score before providing you with loans or credit cards.
A credit score of usually 750 plus is generally favoured by the lenders and even can fetch easy access and good deals on various financial instruments. What is your credit score? Haven’t you reviewed it? No issue. Now you can check your credit score by visiting any online financial lending marketplace. Such marketplaces provide you with a monthly update on your credit score. Alternatively, you can also approach Credit Bureaus, namely CIBIL, Experian, Equifax and CRIF Highmark, for your credit report. You can avail yourself of your Transunion CIBIL score from the CIBIL bureau, Experian report from the Experian bureau, and Equifax and CRIF Highmark score from their respective bureaus. Each of the credit bureaus assures to provide one free credit report per year, post which you must bear a cost to avail more reports.
What if you have not hit the 750-mark credit score? No worries! Ensure to follow these steps, and your credit score will soon surpass the 750-score mark.
Ensure to stop making default payments
Failing to make your existing loan or credit card payments by the due date? Bad, that is extremely bad! Not repaying on time or any missed repayments can pull down your credit score. And as your credit score shows your potential to repay your debts, a low credit score reveals you are an unreliable person. Lenders will hesitate to lend you as they will not consider you credible for the loan or any credit option.
However, if you make your repayments on time and in full without fail, not just your credit score will rise, but lenders will consider you to be a responsible loan borrower also. Timely repayments are also a good indication of your potential to manage debts in a responsible way.
Take your credit utilization ratio (CUR) into consideration
This is for credit cardholders. Well, do you keep a tab on how much credit limit you use? Using a credit card may appear simple for you as you just need to swipe without care, particularly when your credit limit is decent, isn’t it? But you must know that your CUR (credit utilization ratio) has a very strong influence on your score.
Are you wondering what is a credit utilization ratio (CUR)? It is an overall amount that you owe your lenders against your entire credit limit expressed in the percentage form. For example, let us assume that you have 2 credit cards – X and Y. X has a limit of Rs 1 lakh while Y has a limit of Rs 90,000. Now, let us say that you have utilized Rs 50,000 from X’s limit and Rs 20,000 from Y’s limit. Here, in this case, your CUR (credit utilization ratio) will be overall debt (50,000 plus 20,000) divided by the overall limit (1 lakh plus 90,000) multiplied by a hundred, and this comes to 36.8 percent.
Now the ideal credit utilization ratio (CUR) is 30 percent to 40 percent of the overall limit. If you are utilizing over this limit, it is a mark that you are into credit card overuse, and your score may take a hit. Thus, if you are looking to ameliorate your credit score, it is suggested you deduct your credit utilization ratio. To be completely safe, ensure to keep it below 30 percent.
Go for the credit instruments just on a need basis
Do you know that placing multiple applications for loans and credit cards can have a negative impact on your score? Every credit application that you make is looked upon as hard enquiry, which reduces your score. So, we would suggest you conduct research and apply for a product that matches your requirements. And please avoid applying for the same instrument from multiple lenders. Note that checking your credit score is not looked upon as a hard enquiry, so you can consider checking it whenever you want.
Instead of applying directly with the lenders or creditors for credit instruments, ensure to use the online financial marketplaces for comparison and selection of the best lender/creditor. Such platforms provide you with various deals based upon the details you provide them with. While these platforms too fetch your report to provide you with multiple credit deals, their fetches are addressed as soft enquiries. Soft enquiries made by them do not impact your credit score.
Avoid closing your credit cards.
The reason for this recommendation is that closing your credit cards will make you lose out on your credit limit. A reduced overall credit limit may hamper your credit utilization ratio (CUR), which would negatively impact your credit score.
You can understand this with the help of an example. Let’s suppose you hold 2 credit cards. Both the credit cards come with a credit card limit of Rs 1 lakh each. Now, if you assume your overall debt is Rs 60,000 while you close one of your credit cards. Before closing, you had an overall credit card limit equalingRs 2 lakh, wherein CUR (credit utilization ratio) was only 30 percent. However, after closing your account, your overall credit limit has gone down, thus enhancing your credit utilization ratio to 60 percent.
And lastly… As you know, a credit score cannot be improved overnight, and you must continuously do the right financial things for a good score. It is not a 200-meter race. Instead, it is a marathon. Thus, you must be patient. By diligently following the tips listed above, your score can soon surpass the 750 plus mark. Also, you can review your Transunion CIBIL score by easily visiting the bureau’s site or through online financial markets.