NEW DELHI : Generally, if you maintain a credit score of 750 and above, this is considered a good score. People with such scores are considered more creditworthy by lenders and, therefore, are more likely to get loan or credit card approval. Many lenders have also started to consider credit scores as part of their risk-based pricing practice while setting interest rates for their loan applicants. Therefore, those with higher credit scores are more likely to qualify for loans at lower interest rates.
However, if your credit score is low (i.e. below 750), can you still improve it and reap the benefits. Here are some ways to improve your credit score:
Check your credit report for errors: Credit bureaus use data related to current debt outstanding, past credit account, EMI payment, new loan and credit card applications, etc. when calculating a credit score. Thus, any clerical error on the part of the bureau or the lender, or any fraudulent credit application or transaction made on their behalf can have a negative impact on the credit rating. The only way to detect such errors or fraudulent activity is to examine the credit report. These errors or frauds, if any, should be reported to the credit bureau or lender concerned for rectification. Once corrected, the report will automatically reflect a better credit rating.
Avoid Direct Loan Applications from Lenders: Radhika Binani, Product Manager, Paisabazaar.com said, “Whenever one applies for a loan or a credit card, the lender gets the applicant’s credit report from the bank. credit bureau to assess its creditworthiness. These requests initiated by the lender are considered difficult inquiries and each reduces the credit score by a few points. Therefore, those who are considering availing loans or credit cards should use the online loan marketplaces to compare various credit options just like the credit report requests they have initiated. not lower their credit score.
Pay off your debt on the due date: Of all the factors used to calculate a credit score, it is generally believed that loan and credit card repayment receives maximum weight. Therefore, timely repayment of credit card dues and IMEs in the future would steadily improve credit score.
Maintain the rate of use of credit at less than 30%: This ratio is the proportion of the total credit limit that an individual has. You should try to keep this ratio below 30%, because exceeding it gives the impression of being a person greedy for credit and, therefore, less creditworthy. Binani said, “If the credit utilization rate frequently exceeds the 30% level, the card issuer should be asked to increase their credit limit or opt for an additional credit card.”
Never miss a story! Stay connected and informed with Mint. Download our app now !!