Increase Your Credit Score by 100 Points in a Month

20-May-2017 written by : FSI-Team

Building up a sturdy credit score is one of the most rewarding financial investments you could make. A good score makes you future ready for loans at any point in life. According to CIBIL, almost 80 percent of people with score of 750 points or above are always approved for loans.

Thus, whether you want a home loan, an auto loan or a personal loan it is important that you keep your score around the magic mark of 750. Indeed it is a smart financial move to get the score ready before you apply for loan. For, you can increase your score by 100 points or more in a month.

While it may sound like a tall order but raising the score by 100 points is a lot easier than it appears. Let's understand how to improve score in short span in 5 simple steps:

1. Pull out your free CIBIL report to know what is your current CIBIL score. Knowing the score would give you a target to achieve.

2. After you have your report in hands you must know what moves are required to change the numbers. There are basically 5 factors that build or break your score. Each factor has a weightage in determining your score. Knowing these factors you simply need to correct those factors and the score would shoot up itself. Sounds easy. Isn't?

Let's explore it for real. Five factors that affect your CIBIL score are:

  • Payment History: Every month when you repay your loan EMIs and credit card bills, it builds a credit history. The positive repayment history impacts your score by 35%.
  • Credit Utililisation Ratio: Your net income determines how much you can borrow. The income to debt ratio determines how much of available credit do you use. This factor affect your score by 30 per cent. The more credit you use, the lesser is the score.
  • Length of history: How long are you using credit products, builds the length of your history. The longer is the history, the better it is. You can boost your score by 15 % if you build a positive history for a number of years.
  • New credit: When have you raised the last loan or credit card also impacts your history by 10 %. If you had enquired for too many credit cards in the recent past, it would badly affect your score.
  • Mix of credit: The right mix of unsecured and secured loans can boost your score by 10 percent. Too many unsecured loans would adversely affect the score.

3. Knowing the various factors that affect the score, the next task is to correct the report for any of the underlying flaws affecting the score. Coming on to the target of raising 100 points of score, let's assume you are already repaying your loans and bills on time every month. There is no delay whatsoever. We also assume that all the positive account information is updated on your report. Or, you need to ensure that all personal and account information is correctly reported on report.

Now let's consider the second most important factor-- credit utilisation rate.

This is the factor most individual fail to focus on. If you too have missed managing it, you can enjoy a score jump within a short span.

Herein you need to ensure that you are not using the entire limit of the credit card. Check out if you are keeping too much of credit card balance.

You should pay off maximum outstanding credit card bill. Let's take an example here. You have 620 score and own 1 credit card with limit of Rs 60000. Your outstanding bill is close to Rs 50000.

Now this is a big red flag for your report.

Your credit utilization is enthralling 83 percent. You can use your next pay check to clear Rs 20000. This will leave the balance of Rs 30000 on your account. The credit utilization would be 50 percent which is lesser than previous rate, but still way higher than the desired rate.

4. To increase your score, you need to bring the credit utilization under 30 percent. If you find yourself struggling to clear the credit bills every month you should look for ways to make a change here. Eating up credit limit every month only reflect credit hungry nature and hurts the score.

The quickest way to bring the change would be to apply for a new card. Herein you can get a new card and drop the total credit utlization ratio. If you apply for a new card with Rs 1000000 limit your credit limit will scale to 160000 and new ratio will be down to a very healthy rate of 18.75 percent.

Overnight the score would jump to 700+ with the decline in credit utilization ratio.

5. Another important factor to watch out before applying for the new card is not waste money on credit card interest rates. You can apply for a new balance transfer credit card offered at 0% APR and thus make most out of the deal.

With inclusion of new card the credit utilization ratio will fall and escalate the score. Besides the 0% APR would ensure that you are not adding to your expenses at the same time.



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