22-Sep-2018 written by : FSI-Team
Having a high credit score is a must if you want easy loans and low interest rates. However, if yours isn't up to the mark, then you can take various steps to give it a boost. In this blog, you will learn how to create a 12-month comprehensive plan for increasing your credit score. We will divide the plan in four parts:
The first thing you need to do is check your CIBIL score. It ranges from 300, which is the lowest score possible, to 900 which is the highest score on the scale. For most financial institutions, including banks, a score above 750 is considered “good”. So, checking your score can give you an idea how much work is needed to make it good.
As per RBI's norms, every credit rating agency is required to provide every user one credit report per year for free. So, if you haven't received one already, you can get it without spending a penny.
While the credit score is the most important detail you should check in your report, you should also look for errors or discrepancies. These include typos in your name, address, etc. and mistakes in bank accounts, repayment history, etc. If you detect any of these, then you can contact your bank and ask them to get these corrected. Fixing such mistakes usually increases the credit score in just a few weeks.
Your credit cards play a big role in credit score calculation. So, you may want to review your usage and take measures that can increase the score. For starters, you should check how much are you spending a month with the cards alone. Ideally, your credit utilization should be below 40%. So, if your card has a limit of Rs. 50,000 per month, then you should not spend more than 20,000 a month.
Minimum payments are another thing you need to keep in mind when using credit cards. You must avoid them whenever possible as they increase your debt which is never good for credit score calculation.
Now is a good time to check your CIBIL report once again. You may not get a free report now, but the fee isn't too high especially if you select the 1-year plan which costs just Rs. 1,200.
What you want to check in your report is the progress you have made in your CIBIL score so far and the overall repayment history. You should also see if your bank has reported any late payments and whether there are any comments in the report that may hurt your creditworthiness.
If you are unhappy with the progress, then you can consider applying for a new form of credit. This is because variety helps the score increase faster. So, if your report shows the history of a home loan, then you can apply for a small personal loan. Similarly, if it shows the history of a car loan, then you can get a credit card.
By now, you are likely to have made tremendous progress. However, the only way to find out is to check your report once again. If all looks good, then you should keep on doing what you have been doing so far, especially the timely payments of credit card bills and EMIs. If there are any old debts on your report, you should clear them as soon as possible as well.
This is the final phase of the credit building plan. If you have been making regular payments, extended the credit variety on an occasion or two, cleared all your debt, and lowered the credit utilization, your report at this point will show the result that you aimed for in the first phase. If that's indeed the case, you have every reason to rejoice and pat your back for having taken control of your personal finance and preventing your credit profile from ruining. However, you are not done yet. Monitir your credit report regularly. Otherwise, your CIBIL score can drop once again and take you back to square one. So, stay vigilant, and spend wisely.