20-Jan-2018 written by : FSI-Team
A poor credit score can affect you in more ways than one. As a credit user, one needs to be aware of the fact that the lack of a good score will impact his chances of getting any line of credit, be it a loan or a credit card. He must do all he can to improve his score to improve his chances of getting timely access to any credit that he may need. Here are some tips to improve credit score and be credit ready:
The first thing one can do to help is credit score, is to study his credit report to find out the status of his score and credit track record. CIBIL score of an individual ranges in the band of 300-900. 750 out of 900 is considered a satisfactory score.
There are several components that go into CIBIL score calculation such as repayment track record, credit utilisation or the amount of credit used as against the total credit made available to an individual, the mix of credit or the amount of secured and unsecured credit one is servicing, the age of one's credit or the amount of time he has servicing credit and finally the number of hard inquiries on his report. Each time one makes an application for a new line of credit, it gets recorded as a hard inquiry on the CIBIL report and shaves off a bit of his score.
To ensure a good score and blemish free report one must understand each component carefully, and see whether he is taking the necessary actions to ensure that he does not falter on each count. This means he has to ensure that he is making timely repayments on each credit line he is servicing, is keeping his credit utilisation under 30%, maintaining a good balance between secured credit such as a home loan and a car loan and unsecured credit such as personal loans and credit cards, keeping his old cards active and not applying for too much credit in quick succession to pile up hard inquiries.
Due to a large amount of data that is exchanged between lenders and credit bureaus, it is not uncommon for some errors to make way into the credit records of an individual for no fault of his. For instance a loan that he may have repaid long back, may still make an appearance as an open loan account on his records. This may be dragging down his score without his knowledge, if he is not in the habit of checking his report on a periodic basis to keep a watch over the CIBIL score calculation. One must, therefore, get into the habit of checking one's score and report at least twice annually. With CIBIL providing the benefit of one free CIBIL report annually, keeping a watch over one’s score has become even easier and should be done without fail.
During the course of these checks, if one finds that errors such as the ones mentioned above have cropped up, they must be disputed without any delay. Once the dispute is raised with CIBIL, it is also prudent for the credit user to follow it up with the concerned lender to ensure that the error is rectified at the lender's end. Once that is done and the updated information is resent to the credit bureau, one's CIBIL score will improve, thus improving his chances of getting credit when he needs it.
If there are no errors on the credit report, and yet the credit score of an individual is alarmingly low, the reason for the same is probably the reckless use of credit cards. More often than not, people rake up credit card debt in their initial years of owning one and find themselves unable to repay the same on time. As a result, credit records get hampered from the very beginning. The first thing to do to improve one's score is, therefore, to ensure that outstanding balances are being repaid in full on each card that an individual uses. The thumb rule of credit card usage is that one should never purchase anything on it that one is unable to repay in full during the billing cycle and repay the outstanding balance in full each time.
If one can maintain these basic tenets of financial discipline, he can be reasonably assured that he will improve his credit score and thus be ready for credit, if there were to be any need for it.