12-Jul-2017 written by : FSI-Team
Credit scores are becoming increasingly important in current times. The impact of credit history now goes beyond the sanctioning or rejection of a loan application. It can influence your job prospects and very soon maybe your insurance premium rates too! So the significance of trying to better your score cannot be overemphasized; if you have a good score maintaining it should be your priority.
If you have ignored your credit score in the past and are looking at improving then you should do it right away. Scores are made or spoiled over time so they will not be spoiled by one action nor will they improve instantly. So in case you want to jumpstart your credit score we have a few ideas for you.
Let us start with the basics. You cannot hope to increase your CIBIL Score or maintain it unless you don't know what it consists of and what can make it better or harm it. Just looking at your credit score will not help you as the score is just a reflection of many variables over a period of time. So the first step is to get your Credit Information Report (CIR) in case you want to increase CIBIL Score. The score calculation is mainly based on five aspects: repayment history, credit mix, loan enquiries, credit utilization and loan tenure. By going through your report in detail you will be able to pinpoint the exact area that might require your attention and work on it accordingly.
Your credit utilization plays an important part in your final credit score. In fact it is the second most important factor after repayment history in the score calculation. The utilization ratio has a 30% weightage for score computation. The utilization ratio is calculated based on your average credit card/s spending per billing cycles vis-a-vie the total sanctioned limit per card as well overall. So if you generally have a bill that is more than 30% of the sanctioned limit then you could consider getting a bigger card limit. Even if you do pay your dues on time a high credit utilization ratio is an indicator of credit hungry behavior and will impact the score negatively. Having said that get a bigger limit only if you are sure about using it responsibly.
Nothing damages the credit score more than a late payment. If the payments are delayed as a one-off event then their impact might not be so disastrous. However if you are often late then it could have a negative impact on the score. Payment history is the most important factor in the score calculation (35% wightage). A late payment can generate a cascading impact on the repayment history and must be avoided at all costs. Paying on time is the most effective bad credit fix mantra.
Going through your CIR can help in two ways in jumpstarting your credit score. First you know the areas that need improvement so that you can work on them. Another aspect that could be pulling down score could be errors in the CIR. This could be something like a loan or credit card that does belong to you being reflected in the report or a late payment reported erroneously. Taking care of these errors could result in an immediate improvement in the score.
Every application for credit generates a credit enquiry by the prospective lender which is recorded in the CIR. These enquiries can pull down the score. Just avoiding any unnecessary enquiries can go a long way in keeping your score healthy. Even if you want to apply for fresh credit then do so after being sure that you meet the requirements set by the prospective lender. This will avoid rejection and hence the need to apply elsewhere for a loan or credit card.
Any well serviced loan or a credit card is a positive indicator and invokes confidence in future lenders. So continue with your loans and do not pre pay or foreclose them. The deeper the credit trail the better it is. The same applies to credit cards too; keep the old cards with you. If you need to surrender a card then consider surrendering the more recent one.
So, get going and boost your credit score with the help of ideas discussed above. Often one may not have sufficient time to improve the credit score when applying for a loan or job and you may end up losing an opportunity.