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We live in a world where everything is just a tap away. And it is not just information that we are referring to. It is applicable to the loan you took for your last holiday and the Credit Card that you are thinking of applying for right now.
With the increased availability of easy loans and credit cards, credit scores have assumed greater significance. The credit score is referred to by financial institutes & banks not only for approving your loan application but also to determine the interest rate applicable to your loan.
Increasingly, many institutions beyond banks have started using credit scores and credit reports, including your next employer before assessing your candidature. Hence, it's imperative to understand your credit score and ways to improve it.
The credit score is a 3-digit number calculated & assigned by a credit bureau indicating the credit worthiness of individuals. There are four credit bureaus in India for individual customers – TransUnion CIBIL, Experian, Equifax and CRIF High Mark. Each bureau has its own proprietary algorithm and scoring model to calculate the credit score. Hence, the credit score may vary from one bureau to another. The score generally ranges between 300 and 900 in India. This means you can have 4 different credit scores, and all are equally valid.
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What is a credit score?
Credit score is a number that helps determine whether or not your loan will be approved. It is generated based on your entire credit history and record, and ranges between 300 and 900. A high score implies a good credit history, while a score closer to 300 reflects poor credit behaviour. Hence, there are high chances that your credit card or loan application will be rejected. Any score ranging between 550 and 700 is considered fair.
What are some of the ways you can improve your credit score?
If you are someone with a low credit score, do not lose hope. Over time, you can build your score with some simple, but smart moves. However, remember to practice these moves regularly and keep tabs on your personal EMIs and credit card payments.
1. Set reminders to pay on time
Missed an EMI? Defaulting on your credit card payment? Well, it’s time to get organized. Remember, missing the deadline for your payments not only forces you to pay the penalty but also impacts your credit score big time. So, if you want to come out a winner from this situation, use services that remind you or help you automate your payments, so you do not have to worry about missing your deadlines.
2. Clear your credit card dues
Credit cards come with several benefits and offers, so it’s natural to apply for as many as you can. However, it is also important to adhere to a few guidelines if you want your credit score to be perfect. First, make your monthly payments on time. Second, do not max out on your credit card limit. Third, do not forget the first and second rule. Ever.
3. Maintain a healthy credit mix
There are two types of loans – secured and unsecured loans. If you take many unsecured loans, banks tend to see this in a negative light; so, when you apply for a loan, it has a higher chance of getting rejected. It is best to take a mix of both secured and unsecured loans. Secured loans are the ones in which you offer collateral to the lender in exchange for funds. Auto and home loans fall under this category. As for unsecured loans, they do not attract any collateral. Credit cards fall into the category of unsecured loans.
4. Avoid taking multiple loans at a time
If you apply for too many loans or have a habit of maxing out your credit cards frequently, your score will drop automatically as it is seen as unreliable and credit hungry behaviour. Try to avoid taking a loan unless you absolutely need it and also stay far away from your card limit. These habits will help you build a good credit score.
5. Check for errors in your credit report
If you are someone who always follows the above-mentioned rules, yet see your score dropping, check if there are any errors. It could be due to some suspicious activities on your card or an administrative issue. Whatever it may be, ensure you resolve these issues immediately. Reach out to your bank digitally or in-person to resolve this issue.
6. Clear up all your credit card dues
A lender will go through all your records. Yes, all of them. So if you have any pending dues, make sure to clear them as soon as you can. It may not increase your credit score right away but definitely shows your capability to repay.
7. Avoid being a joint account holder
Try to avoid becoming a joint account holder or guarantor for loans. This is simply because any default from the other party will also be reflected on your credit score.
8. Increase your credit limit
If a bank offers to increase your credit limit, do not say no. However, it does not mean you should increase your monthly expenses; rather be smart about managing your expenses. The simplest trick is to have a higher credit limit and keep your utilization low. This will leave a positive impact on your score.
9. Opt for a longer tenure
If you are planning to get a loan, opt for a longer tenure for repayment. This will ensure your EMIs are low, which will help you never default, delay or skip paying your EMIs on time.
10. Get a secured card
If you opt for a secured credit card from leading banks of the country, against a fixed deposit and repay the balance amount religiously on the due date, you will never have to worry about your credit score.
Now, remember that following these golden rules will only help you build a good credit score over time. After all, Rome wasn’t built in a day, right?
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.
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