5 Cool Habits for Gaining a Good Credit Score￼
A credit score is a three-digit number that defines a borrower’s creditworthiness in a score of 300 to 900. Any score above 800 is considered excellent, whereas scores below 600 are worrisome. The credit bureaus in India calculate these scores based on the lender’s data/feedback. A poor credit score indicates credit risk to borrowers; hence, they may reject the loan application or disagree on allotting higher debt.
On the other hand, an excellent credit score can help you enjoy a negotiation advantage for larger debts at lower interest rates. Not only that, employers often desire employees with desirable credit scores to gauge their money management skills and to check for any fraudulency.
Read on to know how you can improve your credit score.
5 Cool Habits That Can Reward You with Good Credit Score
Let us jump into 5 cool habits that can help you maintain a healthy credit score:
- Pay Your Credit Bills Timely
Although several factors determine a credit score, the most obvious one is timely debt repayment. Credit reports with a history of timely repayments and no defaults indicate that the borrower is credible and can be trusted with higher loans as there is minimal credit risk.
These traits can help you create goodwill among lenders and also help you negotiate for lower interest rates on loans. Furthermore, paying off a significant part of your loan as a down payment can help you add more points to your credit score.
If you have trouble remembering credit card bill repayments, you may opt for the automatic repayment option.
- Maintain a Proper Credit Card Balance
You can easily determine your credit behaviour by analysing your Credit Card (CC) balance. Overusing your CC can make you a credit-hungry customer, which does not go well with lenders. Therefore, you must limit your CC usage to not more than 30% of the credit card limit to maintain a good credit utilisation ratio, which rewards you with credit points.
Borrowers with low credit card utilisation display less dependency on credits which is highly desirable among lenders, eventually increasing your credit score.
- Pay off One Loan Before Applying for Another
The less you own, the easier it is to manage. Therefore, one of the most beneficial habits you must develop to increase credit scores is to pay off your existing debt before applying for another loan. By doing so, you can concentrate on repaying one loan at a time and ensure you have enough funds to repay the borrowed debt.
Eventually, with prompt repayments and EMIs, you can grow your credit score and reputation among lenders, whereas applying for multiple loans at a time can indicate a greedy behaviour towards credits.
- Diversify Credit
Diversifying your credit portfolio is one of the smartest and coolest ways to increase your credit score. Borrowers with varied credit records in home loans, car loans, personal loans, mortgages, credit cards, etc., are considered responsible and efficient towards handling any loan.
Therefore, you must have a proper mixture of secured and unsecured loans on your credit portfolio to showcase your skills at managing multiple credit products.
- Avoid Closing Old Credit Cards and high enquiries in credit bureau
While you may consider discarding your old credit cards, you must not forget that maintaining and timely repaying your old credit cards in full can earn you credit scores. This way, you can showcase your rich credit history and avoid lowering your overall credit limit and hindering your credit utilisation ratio.
Apply for loan only when you are sure from that particular bank as multiple loan enquiries in CIBIL affects credit score.
Credit score plays a vital role in a borrower’s profile building. Therefore, any defaults in repayments can scar your Credit Information Report for a long time. To avoid loan settlements, you must recognise your borrowing limit and take action accordingly.
If you sense that you won’t be able to pay off your repayments on time, you should consider paying off your loans by liquidating your assets, which can save you from damaging your credit score. It would be best if you remember to keep an eye on your credit score to detect any discrepancy or erroneous evaluation by downloading the Credit Information Report from any credit bureau in India.
Frequently Asked Questions
Will a lack of credit mix affect my credit score?
A lack of credit mix does not necessarily affect your credit score severely. However, having a diverse credit portfolio can make it much easier to maintain high credit scores.
Can possessing a debit card increase my credit score?
It is a common myth among borrowers that having a debit card increases their credit score. However, it does not work like that. A debit card is not related to a credit account and does not represent a borrower’s credibility.
How is a loan settlement different from a loan closure?
A loan closure is when you complete your loan repayment, and the lender closes your credit account. On the other hand, if someone cannot pay the loan on time, they may approach the lender for a loan settlement, where a part of their debt is waived off, and the status of the loan is marked “settled.”
How many credit bureaus in India?
In India four credit bureaus are there – CIBIL, CRIF, Experian and Equifax.