Credit score- no doubt it is a critical piece of your financial life. From helping you fetch loans at reasonable interest to giving you rewards on your purchases, having a good credit score can do wonders for your credit profile. Building credit is indeed a long process, you are required to check your credit history from time to time and show good behaviour that will ultimately help to increase your score gradually. But mind you, as per the credit policy, good credit scores can take years to build. However, we have compiled top hacks that can help you build your credit scores in considerable time.
Close any unused credit cards: An open credit card that is not being used could eventually lower your credit score. In addition, you don’t even need more than two credit cards because having more than that will complicate things and increase the likelihood of management errors.
Consolidate your bills: Reducing your debt is important to improve your credit score. However, managing several repayments can be difficult, which can cause stress and missing payments. Consolidating your obligations into one loan with a lower interest rate might be a good choice if you are having trouble paying off several bills. As you would only have one debt to pay off, this will not only simplify your finances but also save you money on interest.
Reduce your debt-to-income ratio: Debt-to-income ratio is a straightforward but important idea to help you improve your credit score. It can be defined as the proportion between your total debt and your gross revenue. Consequently, a larger debt-to-income ratio suggests a higher debt load, which also translates to a lower credit score. By dividing your monthly debt payments by your gross monthly income, you may figure out your debt-to-income ratio. Most experts agree that keeping this percentage around 40 is essential for a high credit score as per the credit policy.
Reduce your credit utilization ratio: Your credit score reflected on your credit history is based on a number of things. The credit utilization ratio is one such influential aspect due to the fact that it makes up 30% of your score. Simply put, credit utilization is the amount of credit you have available divided by the amount of credit you are now utilizing. Your credit cards’ total credit limit is Rs. 50,000, therefore, if you spend Rs. 10,000 on them, your utilization is 20%. Now, as per the credit policy, credit bureaus will use your statement balance in this calculation so that you have utilization even if you pay off your balances in full each month. Use no more than 30% of your credit card’s maximum amount as a general rule as per the credit policy. Many experts advise attempting to keep it below 10%.
Fix credit report errors: Banks occasionally make reporting mistakes that lower your credit score, which is why it is essential to check your credit history. Even if you haven’t missed a payment, most of us overlook the benefits of routinely reviewing our credit reports. In reality, it doesn’t cost you a penny to review your credit report. You have to submit a dispute to the credit bureau if you spot any error for them to rectify. No mistake is too trivial to be reported. Once the credit agency corrects the error, you should notice a fairly immediate change if the error had an impact on your score.
Request credit limit increase: Request an increase in your credit limit on a regular basis. Although the procedure will vary depending on the lender, it is usually simple and quick. All you need to do is reduce your utilization by raising your credit limit. When doing this, there are two factors you must keep in your mind. First, you shouldn’t ask for an increase on a new card. Many lenders won’t increase your limit if it’s a brand new credit limit. Next, you want to make sure that your request for an increase doesn’t result in a hard inquiry on your credit report. In most cases, they will immediately approve your request for a modest raise.
Pay off the highest balance first: Work on paying off your credit cards in addition to minimizing your future expenses. Focus on the card with the largest balance if you have numerous cards with balances in order to lower your credit usage ratio. Your debt-to-income ratio, which many lenders utilize even though it is not a major component of your credit score or credit policy, can be improved by paying off your outstanding debt.
Pay off your debt by the due date: It is generally accepted that the repayment of loan and credit card dues is given the most weight among all the factors used to determine a credit score. Therefore, timely payment of future credit card EMIs and dues would gradually raise the credit score.
Minimize hard enquiries: The lender or issuing business will verify your credit report while considering your application when you seek a loan or credit card. A hard enquiry is referred to as the lender’s request for a credit report. Multiple hard inquiries can give the impression to the lender that you are credit-hungry and lower your credit score. Avoid applying for multiple credit lines if you’re seeking to raise your credit score.
Generally speaking, if you keep your credit score at or above 750 and keep checking credit history, it is seen as good. Such scores increase a person’s creditworthiness in the eyes of lenders, increasing their chances of being approved for a loan or credit card. When calculating interest rates for loan applicants, many lenders now take credit score and credit history into account as part of their risk-based pricing strategy. As a result, folks with better credit ratings are more likely to be approved for loans with lower interest rates. However, you can still raise your credit score and profit even if it is low (below 750).