How to build a good credit score | boost credit score : Credit Score is a critical score in your financial life which shows your credit worthiness. A good credit score helps in getting good reward credit card, better terms and low interest rate on loan. If you credit score is low then you must be looking for quick tips and trick to improve it.
A higher credit score indicate that borrower is having good credit history, doing on-time repayments, effective credit use and is less risky investment for the borrower. However, a low credit score illustrate late repayments, over use of credit which leads to rejection of credit application from bank or institution.
7 Quick way to build your credit score
Credit Score becomes primarily important while looking for loan from banks or NBFCs. Here in this article, we will know 7 quick ways to build a good credit score from 0 or boost it. Firstly, you must know that there is no single way to boost credit score overnight. You can follow these steps that might help you to build score over time.
Get a Credit Card
Most of the banks or financial institutions will not give you credit card without a good credit history. As a credit score is the only way to assess your credit worthiness. Now the question arises then how your will build credit score without lender willing to give you credit?
There are two types of Credit Card – Secured Credit Card and Unsecured Credit Card
It is difficult to get unsecured credit card for beginners due to no credit history. This type of credit card doesn’t require collateral or security. If you have regular monthly income you can apply for unsecured credit card on basis of last 3 year income tax return (ITR).
A secured credit card is the best option if you are building credit score from scratch. If you are not earning then get a secured credit card by offering a security amount or collateral. The credit limit is usually same as the security amount. Choose a secured credit card with low annual fees and also check for whether it reports your credit data to all three credit bureaus – Equifax, TransUnion, Experian.
Once you get it, start using it to build your score. Keep your balances low and make on time repayment which help you to add points to your score.
Become an Authorized User
As we already known above that with no credit history it is difficult to get unsecured credit card. But here is another way using which you can build your credit score. You can become an authorized user on someone else’s credit card. That someone may be your family member, spouse or anyone who has trust over you.
Since you are new to credit it becomes your responsibility to use card wisely as a single miss in repayment will directly impact the credit score of the primary card holder.
Avoid Late Payments
You repayment history directly impact your credit score and is one of most important factor in determining your score. A long history of on-time payments can help you to boost your credit score.
Periodically, your lender reports your credit data to credit bureau which is used to prepare your credit report and calculate credit score. A single late repayment can hurt your credit score significantly for a long time. In case you miss a payment by 30 days or more, contact the lender as soon as possible and pay off the dues.
How you can avoid late payment? – Set up account reminders to avoid late payments or you can opt for auto pay facility for minimum amount offered by most of the bank and financial institutions.
Limit your Credit Utilization Ratio
Credit utilization ratio, also known as balance to limit ratio refer to the amount of revolving credit divided by total credit limit you have been offered by the bank or financial institution. In simple terms, it’s the how much your currently owe divided by credit limit.
Credit utilization ratio play an important number used to calculate your credit score. A higher credit utilization ratio indicates overspending that can poorly impact your credit score. Lower the credit utilization ratio, better it is to quickly improve your score.
So what is the ideal credit utilization ratio? – Try to maintain Credit Utilization ratio below 30 percent. In simple words, keep your total outstanding balance at 30 percent or less of your total credit card limit. It applies to individual card and total credit utilization ratio. Above 30 percent CUR can decrease your credit score leading to rejection of your loan application.
Limit your Applications for New Credit
When you apply for credit card or loan with multiple banks or financial institution, it impacts poorly your credit score. Before giving approval to your loan or credit application, lender will do enquire into your credit score. These credit inquiries help the lender or companies to check the level of financial responsibility and determine whether to approve or reject your credit application.
When you apply for credit with multiple companies at a time, it may lead to a hard inquiry hurting your credit score. Further, it implies that you need credit due to financial difficulties and are therefore a risky investment. So limit your application for new loan or credit card with different companies to boost your credit score.
Check your Credit Score and Reports
Keep regularly checking /verifying your credit report for error or mistakes. Sometimes, a mistake could be hurting your score.
The mistake in credit reports may be like, someone else’s credit or loan reported into your credit report, you paid EMIs on time, but marked late in your credit file.
If you find such mistake, immediately raise dispute to correct them and do follow up. It can help you quickly improve your credit score.
Use Credit Card Regularly
The regular use of credit card with timely repayment of bills, maintaining ideal CUR will help you build a healthy credit history.
Some people don’t get score just because of inactivity on credit card, as lenders don’t have anything to report to bureaus. So keep your credit card active and use it once in a month at POS, online, e-com website etc.
It not only helps those who have good credit history but also those who want to build from scratch.