Credit Score – Beginner’s Guide

Keeping a disciplined attitude towards your credit is a simple way of forming a good CIBIL score for personal loan, car loans, home loans or credit cards in the future. However, there are many who do not know what credit score is and struggle with finding answers to the query of how my credit score can be improved. Here’s a detailed guide on credit scores to make you understand the importance of it.

It’s easy to say than do – maintaining a credit score helps improve your potential to avail more credits in the future. However, the major question is, what’s this score, and how can you keep the score high to be eligible for loans or credit cards? Let us hit the chord and begin with the basics – what’s a strong credit score, and how can you compute and check your score?

A credit score is a 3-digit numerical representation of your financial behaviour towards credit that reveals your credibility. Additionally, credit bureaus compute your free score by factoring in parameters like your credit age, credit utilization ratio, repayment history, type of credit opted for, etc.

Major key takeaway – Having a strong credit score is looked upon as a benchmark and to understand your credibility for more credits by the lenders. If you hold a strong credit score, you may enjoy a wide range of benefits, like getting access to the best loan rates and nil or lower processing charges on loans and better credit cards to earn higher rewards and perks. If your credit score is over 750, then it is considered as good. To know more regarding your score, keep reading.

Credit score  Rating
750 – 900 Excellent
650 – 749 Good
550 – 649 Fair
300 – 549 Poor

Actionable strategies that can assist you in attaining a strong credit score – 

Always repay your bill in full and on time.

Keep in mind that repayment history considerably influences your credibility and credit score in some or the other way. You cannot afford to take the risk as missed, or late repayments remain on your report for around 6-7 years. So, you must continue making repayments on time and in full.

Also Check: CIBIL Score for Personal Loan

Monitor your credit card to review your errors and inaccuracies

It is difficult to know who may be prying on your loan and credit card details. Even a minor vulnerability and negligence on your end may endow an opportunity for cybercriminals to commit identity theft. Thus, monitoring your credit card is necessary not just for your safety against cyber crooks but even to keep a thorough check on your incorrect listings and errors. You can download your free credit report directly from the credit bureaus. One credit report every year from each credit bureau is free. Alternatively, you can also download free credit reports from online lending marketplaces. In case you see anything which is inaccurate, then you can straightaway report it to the bureau or lenders for instant rectification. Instant rectification can automatically increase your credit score.

Integrate all your debts in a single place

It often gets cumbersome to keep a thorough tab on multiple payments. In case you are juggling multiple debt repayments, it is best you consolidate all your debts under a single umbrella as a single loan provides a lesser interest rate.

Cancel the additional/unused credit cards

Always note that hoarding credit cards will not do any good to you. Over the long term, it will just harm your score. If you hold over 2 credit cards, then it just results in unnecessary mismanagement and hassle.

Opt for credit card limit enhancement

If your card issuer is willing to provide you with the offer to enhance your credit card limit, then make sure to accept it. Do not turn down this offer because it can assist you in ameliorating your score. In case you are a shopper, who is compulsive in nature, then you must control yourself. In this case, you may not accept the limit increment offer. Take the limit increment offer only if you are responsible for credit and may use the additionally enhanced limit just to mitigate exigencies.

What are the major mistakes you must avoid at all costs?

Even though you unintentionally and unknowingly end up making errors or mistakes, it can impact your score. If you are aware of what mistakes you must avoid, it can help you resolve the issue of a low credit score.

Mistake no. 1 – Insufficient credit history

Many often abide by the myth that if you do not borrow money from banks, then your credit score will be excellent or good. If you are one of those, then note that is not the reality. Your credit score is dependent on your credit history. The ending note is if you do not have a good credit history, it may impact your score as lenders may be left with nearly zero data to monitor your credibility.

Mistake no. 2 – Continuously missing or making late repayments 

If you have the habit of missing out on your repayments or making late repayments, then it may negatively affect your credit score. Do not forget that 45 per cent of your score is dependent on your repayment history. The silver lining here is when you begin making timely repayments, ensure to make it steadily and slowly to ameliorate your score.

Mistake no. 3 – Applying for several credit cards

In case you are tempted to apply for several credit cards to show off, then it means you are overlooking its repercussions. If you constantly avail a credit card, it may lower your score as enquiries for a credit card are considered hard enquiries for which bureaus may consider you credit hungry and lower your score as an outcome. Moreover, in the future, this specific behaviour of yours may aggressively impact your credibility and your chances of getting quick credit approvals in times of financial emergencies.

Mistake no. 4 – Not reviewing your credit report periodically

It is common to have mistakes or errors in your credit report. However, it this certainly not right to leave all those unattended. Ensure to review your credit report on a periodic basis and if you figure out any problem or issue, fix those instantly. A corrected report will automatically enhance your credit score.