A credit score is nothing but a three-digit numerical representation of your credibility that ranges anywhere between 300 and 900. This score is computed by the top 4 credit bureaus in India namely CIBIL, Experian, Equifax and CRIF Highmark. Usually, lenders like non-banking finance companies (NBFCs) and banks consider a credit score equaling 750 and above as good. Every credit bureau undertakes its own algorithm to calculate the credit score. It is computed after taking into account parameters like credit utilisation ratio, payment history, credit type and credit age. Note that, it is a must for you to conduct a credit score check online to know where you stand financially. In case you hold a low credit score, ensure to enhance by adopting good credit behaviour to keep intact your credit eligibility prospects. Read on to understand how your credit score is formed in your report.
Payment History (High Impact)
Past repayment record is one of the crucial parameters that impact your credit score. If you have stayed constant in repaying your loan EMIs and credit card dues, it indicates your responsible behaviour and lower credit defaulting risk. A healthy credit behaviour will even make you eligible to avail preferential interest rates on loans and faster loan approval on your application. Making late payments, missing out on payments, etc. can reduce your credit score by several points.
CUR or Credit Utilisation Ratio (High Impact)
Credit usage is the next crucial parameter that impacts your credit profile and score. A CUR (credit utilisation ratio) is the overall credit amount you have utilised in proportion to the cumulative overall credit card limit available to you. CUR is computed by dividing your thorough outstanding dues by your overall credit balance by your thorough credit card limit. As per experts, you must ideally use just 30 per cent of the overall credit card limit to maintain a good credit score.
Credit Age (Medium Impact)
To better evaluate your credibility, your credit history is even factored in when calculating your credit score. If you have managed your credit responsibly in the past and continue to serve the payments in full and time, it will positively impact your score. A long credit history assists lenders in taking sound decisions on whether to provide you with credit. Thus, it is recommended to keep your credit card with a long credit record open than the credit cards you have currently acquired.
Overall Accounts (Low Impact)
It is crucial to maintain a strong balance between your secured and unsecured credit. For instance, a credit card is an unsecured credit while secured credit may be a home loan or car loan. A balanced mix of credit assists to boost your credit score. While it has a lower impact than other parameters, you must not avoid it. Your overall account shows the experience you have with managing both credit types. You must avoid borrowing just one credit type in huge quantities as it can impact your credit score. Along with the account type, your credit inquiries are even factored in while computing your credit score. It is recommended to review your score on your own before you apply for the loan.
Crucial Steps You Must Follow To Ameliorate Your Credit Score
A credit score is an important 3-digit number that shows your past credit behaviour. CIBIL score required for personal loan, vehicle loan, education loan, credit cards and other credit options are 750 and above. Based on the data provided by lenders to the credit bureaus, your credit score is computed. The important data asked by the credit bureaus are your past credit behaviour, payment history and the number of credit accounts. Before granting you a credit card or loan, financial institutions take your credit score into account to decide your credibility.
Any credit score of 750 and above is considered excellent. So, if you do not have a strong score, lenders might shy away from approving the loan. Here’s how you can ameliorate your credit score.
Best Ways To Ameliorate Your Credit Score –
There are various ways to ameliorate your credit score. Read on to know them –
Check Your Credit Score Report To Spot The Important Errors And Correct Them –
Is your credit score trending downward while you hold a strong payment history? It can be owing to an error in your credit report. For example, it might happen that you have cleared off one of your loans, but it is still showing up in your credit report. This might impact your credit score a tad bit. Thus, it is advised for you go through your report regularly. If you spot any errors or discrepancies, ensure to bring the same up to the bureaus. Eliminating such mistakes can boost your credit score.
Maintain An Older Credit Card –
To form a longer and stronger history, ensure to continue using your older credit cards. Definitely, closing your credit card is your only alternative in the scenario you find it is extremely impossible to make the payments in full and on time. Ensure to keep in mind that holding a credit card account that is being used by you consistently over time will always enhance your credit score.
Make Your Repayments In Full And On Time –
Your credit score may take a massive hit if you do not repay in full by the due date. Each time you default, the same gets recorded in your credit report, which ultimately impacts your credit score. Always, ensure that your credibility is reflected in your past repayment record. Thus, to ameliorate your credit score, you must continue making timely payments. One of the best ways to deal with the same is by setting standing instructions. In this way, you will not miss out on your repayments.
Try To Hold Distinct Credit Forms –
Maintain a good credit mix of unsecured and secured credit to stay on the safer end. Multiple unsecured loans may result in a negative impact on your credit score. Now here is a crucial parameter that you must note. In case you have not borrowed the money before, you will not hold a credit history and that might have a massive impact on your credit score. Without an excellent score, you may find it tough to avail a loan from lenders.