Thursday, 30 November 2017

10 hacks to improve the credit score

Loans have become an integral part of the financial life of most Indians.  At some point in our life, whether while buying a car or a house, for wedding, or for educational purposes we may need to borrow funds. A good CIBIL score helps in securing easy approval for loans at a low rate of interest. So if you are planning to take a loan in the near future and wish to improve your credit score here are some tips. 

1. Check your CIBIL report

Understanding your current credit situation is the first step to improve credit score. Order your credit report and score to see what your lenders use to determine your creditworthiness. Scrutinize each and every detail carefully and identify the areas on which you need to work upon. Check for errors in the report and approach the bureau to get them rectified. Mistakes on the part of the bureau are fairly common. These errors may be the reason for a low credit score. Once you get them fixed, you can see a rise in the score.

2. Get current on payments

Missed payments of last month may have pulled down your credit score by 50-100 points. If you clear your past dues and start making all payments on time from now on, then your score will definitely get a boost.

3. Live within your means and stick to a budget

Manage your personal finances well by preparing a realistic budget and sticking to it. Use credit cards only for convenience and not for spending more than what you can afford. Consider your incomes and expenses and do not spend more than what you can repay at the end of the month. Carrying huge balances month after month will bring down your score.

4. Reduce credit utilization

Credit utilization is the amount of available credit that you have used on the credit card. This factor contributes significantly to the credit score of an individual. Work on reducing the balances on the card to ensure that the utilization level stays below 30%. If you knock of the debts on the cards that were maxed out, you will see a significant improvement in the score.

5. Pay twice a month

If you charge a number of expenses to your card and almost reach the limit, then it might hurt your score even if you pay the balance in full when the credit statement arrives. That is because the debt utilized amount that is sent to the bureau at a particular point in time may differ from the statement balance. By making two payments in a month you can reduce the balance that will be reported to the bureau.

6. Clear your card balance by taking a personal loan

If you do not have sufficient cash right now to pay off your credit card balances, then take a personal loan of a lower rate of interest to do so. Paying off the credit card debt will not only save you from high interest costs but it will also reduce the credit utilization levels. This will give an immediate boost to your CIBIL score.

7. Request for a raise in the credit limit

Another way of reducing the utilization level is to get a raise in the credit card limit. Ask the bank if you can qualify for a credit line increase. You will need to ensure that you do not increase your spending so that your existing debt constitutes a lesser percentage of available credit.

8. Talk to your creditor

If you have negative items on your report which you have now paid, then talk to your creditors if they can remove those entries out of goodwill. For accounts that have gone to collections, you can work out an arrangement with the creditors, wherein you pay the account balance in full and in exchange the lender deletes the entry from the credit report.

9. Do not close old credit cards

Length of the credit history plays an important role in determining your credit score. Old accounts increase the average age of your accounts. So do not close old cards even if you do not use them often. Just keep them active by charging a small monthly expense and then pay it in full. 

10. Use a secured credit card

If your score isn’t good enough that you qualify for a regular credit card, then apply for a secure credit card that does not require you to have a very good credit score. Use this card responsibly to display positive credit behaviour. Over a period of time you will build good credit and see improvement in score.
It will take a few months before your positive habits results start showing up in the report. Hence in addition to these hacks that will help you improve credit score, you will need a lot of patience and dedication.

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