5 important ways to boost credit score for a stable financial health this year
5 important ways to boost credit score for a stable financial health this year, Borrowing helps us meet our monetary needs and achieve our financial goals. The goals are many: completing education, owning a home, buying land, home repairs, or even buying a home appliance.
To get a loan, you need to be eligible for the loan. One needs to fulfil certain requirements set by the lender. Among the several parameters which your lender checks before offering you the loan, your latest credit score is of prime importance.
Your credit score is a number ranging between 300 to 900. It is a measure of your creditworthiness. In simple terms the credit score describes your eligibility for a loan taking into consideration your repayment ability.
A credit score over 750 is considered optimal and should allow you access to most loans. The closer you are to 900, the better your chances of being approved, subject to other parameters such as your income.
It’s recommended to have a strong credit score at all times. You never know when you may need a loan. You don’t want to be in a situation where you neglect your score and then suddenly need a loan but are declined because your score is poor.
Here are the five points you may consider if you want to maintain a healthy credit score.
A) Timely EMI and Credit Card Payments:
In the way credit scores are calculated, timely payments have the biggest positive impact. Your score increases as you pay on time. It decreases if you are late. Late payments, whether your credit card payments or your EMIs, reflect negatively on your credit history, and lenders do not like it.
B) Don’t Exhaust Your Credit Limit:
All credit cards have a set spending limit. The limit is set by the bank, taking into account your income and credit score. The higher your income and credit score, the more your spending limit can be. But hitting your spending limit frequently is going to lower your credit score.
It is advisable not to exhaust your spending limit and stay under 30%. You can go higher in emergencies but going higher regularly is bad for credit health. This is because you’ll be considered credit-hungry. New lenders will see this as a red flag.
C) Avoid Many Concurrent Debts:
Too many loans and card debts running simultaneously will squeeze your disposable income. Borrow thoughtfully. Ideally, have no more than 30-40% of your disposable going towards EMIs, preferably lower if your income is low.
Too many unpaid loans against your name lower your credit score. Also, you’re at risk of default if you lose your income, which could destroy your score.
D) Mixed Borrowing Is Good:
Your credit score is mildly impacted by the kinds of loans — secured or unsecured — that you’ve taken. A combination of secured loans (home loan, car loan) and unsecured loans (personal loan, credit cards, or loans on credit card) improves your credit score. However, your creditworthiness will be lower if your credit history is tilted more to unsecured loans.
E) Avoid Partial Payments On Credit Cards:
Credit cards allow customers to make minimum payments — typically 5% of your balance. This often fools borrowers into thinking that minimum payment is enough. However, the balance continues to attract interest at 3-4% a month, which is a lot.
Also, as your card balance increases, your credit utilisation increases, and thus your credit score falls. Minimum payments lead to hefty interest; they also lower your score.
In summary, timely payments and low credit utilisation are your best friends for increasing your credit score. Lastly, if you use any credit, do a monthly free check online of your credit score. It will help you understand how your credit behaviour shapes your score. If your score is falling, you may be able to take timely steps to improve it.
