Improving the credit score may appear to be a very daunting task, but it isn't the way it seems. Rather a reasonable understanding of how credit score works and a few simple steps assist in improving the credit score.
So, before detailing how to improve the credit lets us understand the nitty-gritty of credit score.
A credit score is a numerical expression which evaluates the creditworthiness of the user. It tracks the number of accounts, debts taken and repayment made. It then provides a score which helps in determining whether the user will be able to fulfil his existing and new credit obligations. A credit score is a three-digit number which lies between 300-900, the higher the credit score, the better the ability of the customers to pay back the credit obligations. Thus, a higher credit score helps in getting the loans too.
A credit score of above 650 is termed as a good credit score; however, a person should always try to reach around the mark of 750. A credit score of high 750 helps an individual to get loans at cheaper interest rates. There is a lot of flexibility and people can carry a credit score check free online easily.
How to improve the credit score
Now that we have understood what the credit score is and what qualifies as a high credit score let us tread ahead and unlock the secret of how to improve the credit score.
1. Timely payment
Individuals should make sure that they are paying their debts before the deadline. Outstanding debts have a significant impact on the credit score. It not only attracts penalty but also is the main constituent of the credit score and impacts it negatively. Individuals can add the remainder for the payment so that it minimizes the chances of improper payments.
2. Maintain your credit cards
Individuals should make sure they are using and maintaining their credit cards. They should not discard their old credit cards. Managing credit cards helps in creating a more extended credit history and improve yourCIBIL scoreover time.
3. Diversified debt instrument
Diversified debts instruments mean a right mix of secured and unsecured loans; it also means there should be a suitable combination of long and short term loans. The diversified debt instruments help in creating a better credit score and further helps in qualifying for low interest and high amount of loans.
4. Review your credit score
Analysis of one's weak areas helps one to understand the areas one need to work to make things better. Similarly, analysis of the credit score helps one to understand the reasons behind the low score and even in the cases when the credit score is high it assists one in making it even better or maintain it. So, individuals must analyze their credit score at least yearly and should work on the right areas to improve it.
5. Rectify the mistakes
There is always a chance of wrong credit history. Individuals must make sure that they check their credit history regularly, and if the wrong credit history is updated, they should report the same and get it rectified.
6. Limit Your credit inquiries
There can be two types of credit inquiries, soft inquiry and hard inquiry. Soft inquiries occur in cases where one checks his credit, or when a lender or credit card company checks his credit to pre-approve for an offer, it will not affect one's credit score. Whereas, hard inquiries can affect one's credit score negatively if inquired for anywhere from a few months to two years. Hard inquiries occur when one applies for new credit. The rare hard inquiries are unlikely to have much effect. But many of them in a short tenure can impact credit score negatively.
7. Avoid taking too much credit at one time
Multiple loans at one time impact the credit score negatively. Individuals must try taking a single loan at one time and applying for another at the end of one loan.
8. Keep Your Credit Utilization Low
Individual must try to maintain a credit utilization ratio below 30% on each of his credit cards. The lower the utilization ratio, the better it is for credit score. Credit utilization is determined by comparing the balance listed on your monthly statement against one's available credit. One can better it by spending less each month and asking for a higher spending limit.