18-April-2016 written by : FSI-Team
Having a good credit score can be the key to your financial future, as you are more likely to be offered home or auto loans at the most competitive rates. In the long run therefore being credit healthy can have a lasting, positive impact on your investments and savings as well. While loans for bad credit score are not impossible, they are not the ideal scenario that you would want to settle for.
When Sunil wanted to buy a house to secure his family’s future and his own, he was immediately granted a housing loan at competitive interest rates on account of his high credit score. This not only helped him fund his dream home, but also saved him money. Not only were the interest rates the best in the market, but more importantly, Sunil got the loan just when he required it the most. Had the loan application been declined, Sunil would have had to wait to reapply for a loan, and the likelihood of property prices rising is ever present. Further, it could also be likely that the house Sunil had identified then may not have been available at a future date.
What, then, was the key to Sunil’s credit success? Come; let’s explore five easy steps by which you too can better your credit score.
A CIBIL score is nothing but a credit score, offered by CIBIL, India’s oldest credit bureau. Owing to the first mover advantage, very often a credit score is known as a CIBIL score colloquially in India. The other bureaus are Equifax, Experian and CRIF High Mark. When you wish to avail of a credit report, you can request for one from any or all of these bureaus. Currently however none of the bureaus offer free cibil report, however you can avail of one on payment of a small fee.
Payment history, as you will see plays a critical role in arriving at an individual’s credit score.
Credit scores typically range from between 300 to 900 universally. With CIBIL, a score of 750 and above is considered to be a good score. Let’s see what you should do in order to achieve a high score.
Know your credit report
It is advisable to check your credit report at regular intervals (say annually). This will give you an understanding of what your credit history is like, and allow you the freedom to work on repairing or rebuilding the score if so required. Also, if there is any erroneous information contained therein, you can have it brought to the attention of the bureau and the concerned lender to have it rectified. This not only ensures that your credit history is accurate and up to date, but also protects you from the unknown dangers of crimes like identity theft. When you decide to apply for a loan, it is a good idea to check your report at least six months in advance; so that you have time to work on it should you need to.
Make timely payments
Probably the worst sort of damage you can do to your credit score comes by way of making late payments. When you delay a payment, it indicates to a lender that you are likely to be insolvent or at least have a financial crunch wherein you are unable to pay off what debt you owe. Hence to avoid falling into a debt trap ensure that you make timely payments towards all outstanding, be it loan or credit card payments. If you are unable to remember due dates, consider setting up alerts and reminders on your mobile device to keep track of payments due. What could be worse than making a late payment is skipping a payment cycle altogether. Hence make sure you do not err to avoid being on a loan defaulter list with your lender.
Build a positive credit history
A sure-fire way to better your CIBIL score is to have a positive credit history on your records. If however your current history is not up to the mark, start working towards improving the same. For instance, you could apply for a secured credit card at your bank or with a credit card company, so that you can steadily and surely start to build a good credit history. Over time, your score will improve and you can choose to avail of a ‘regular’ or unsecured card. Do keep in mind however that the length of credit history also matters, so the earlier you begin, the better it is.
Low credit utilisation
With your credit card comes a predetermined credit limit that allows you to spend up to that amount. However, what gets monitored is your credit utilisation limit, or the percentage of the total credit limit assigned to you (across all cards) that you make use of. The ideal limit or ratio is 30 percent, anything over that can signify financial problems for the cardholder, leading to any lenders being wary of extending credit to such individuals.
Keep the applications to a minimal
Is there a new credit card offering in town, and are you tempted to opt for it? If yes, we’d recommend that you rethink it, as every time you apply for a fresh line of credit, a hard enquiry is made against your report. What this does is, to bring down your credit score, even if temporarily. Hence apply for a new card or loan only when you really do require the same.
Achieving and maintaining a good CIBIL score is not impossible, just that it requires a fair amount of financial discipline and patience. However, the rewards are long lasting and given that they can impact your financial fitness significantly, the right time to get credit healthy is now.