05-Apr-2017 written by : FSI-Team
Credit score - It can be an asset for some while a source of tension for others. It all depends on where your number lies between the range of 300 to 900. A credit score is derived from the information in your credit report which shows the various loans that you hold with different banks, your repayment behaviour, outstanding dues and other credit related activities. Good credit habits and timely repayments of debts lead to a good score. Before the banks consider lending money to the borrowers, they evaluate them on the credit score parameter to judge their defaulting risk. While a high score strengthens one's ability to obtain funds, a low score is a sign of trouble.
If you are stuck with a low credit score and unable to get loan approvals because of this dreaded three digit number, you are not alone. Many people are unable to get out of this catch-22 situation. While they need to take credit to demonstrate their responsible repayment behaviour, they are unable to do so, as banks prefer to stay away from high risk borrowers with a low score.
Here is what you can do to rescue yourself. There are several options that can help you improve credit score and get your financial health back on track.
1. Check your credit report- This is the first and the most important step if you wish to improve your credit score. Analyse your cibil report to see how your spending and repayment habits are affecting your score. You can get a free credit report every year from the three credit rating agencies in India. A careful review will help you to pinpoint the reasons for the bad score. If your score is suffering because of multiple late payments, then setting automatic debits or alerts will help to mend your past habits. If an identity theft or mistakes in the report are bringing your score down, you can contact the credit bureaus to fix the issue.
2. Timely payments- A good payment history is one of the prime factors that improves credit score. Start paying your credit card bills and loan EMIs in a timely fashion. When your recent payment habits improve the effect of past late payments will eventually begin to diminish.
3. Accounts in collections do the most damage to your credit score. If you have such accounts then talk to the bank about formulating a structured repayment plan. Reducing the balance owed on these accounts will help you fast track your credit repairing process.
4. Use your credit cards wisely. If you have huge outstanding balances then paying them off will help improve credit score. Make sure you spend only the amount that you can repay by the end of the month. This will help in keeping the utilization levels low. If you exhaust your credit card limits very often it reflects negatively on your score. Another way to improve your utilization ratio is to ask the banks to step up your credit limit.
5. Use credit building products like a secured credit card. This can be easily obtained from any financial institution even if you have a low score. You are required to make a security deposit with the bank that shields the bank from any default risk. It is similar to any other credit card where you have a credit limit and your activities are reported to the bureau. So if you are stuck with a low score, you can use this product to establish a track record of responsible repayment behaviour.
6. You can also consider loans for bad credit score. There are several financial entities that offer you loan for bad credit and give you a chance to establish a positive credit history.
7. Do not remove old debts from your credit report even when they are paid off. The longer the history of your debts the better it is for your score. Similarly do not close old credit cards even if you do not use them. If you have a good repayment record on their payments they contribute to improving your score.
Follow these steps to dig yourself out of credit problem. But do not expect a miraculous change in a few months. Remember patience is the key! With the right steps and motivation you will surely be able to turn things around.