Many individuals miss out on favorable credit opportunities because they underestimate the significance of maintaining a strong credit score. An individual’s credit history and score play a pivotal role in funding decisions, determining loan approvals, and influencing the interest rates offered. Notably, a person’s credit score can also impact the rate of interest for their vehicle or home loan, as well as affect credit card approval decisions. These credit scores are compiled by credit bureaus like TransUnion CIBIL, CRIF High Mark, Experian, and Equifax, based on information provided by banks and financial institutions.
A person’s creditworthiness is denoted by a three-digit number, ranging from 300 to 900, indicating their suitability as a borrower and consumer of financial services. Typically, a score exceeding 750 is considered good, while scores below this threshold undergo thorough scrutiny before loan or credit card approvals. Hence, it is essential for individuals to proactively maintain a strong credit score. The following are measures to ensure the continuous health of one’s credit score.
Ensure Timely Payments
Individuals should guarantee the punctual settlement of their loan EMIs (equated monthly instalments), credit card bills, and payments to telecom and other service providers each month. This can be accomplished through options such as ECS (electronic clearing service) debit, automatic payment modes linked to bank accounts, credit cards, or digital wallets. For those who prefer manual payments, setting up a monthly reminder system can be beneficial.
Monitor the Credit Utilization Ratio
Individuals using credit cards should ensure a prudent credit utilization ratio, ideally maintaining it at 30 percent or lower relative to the total available credit limit. It is advisable not to utilize the entire credit limit on a card, as this indicates unfavorable credit utilization and can negatively impact the credit score. In cases of elevated monthly expenses, it is recommended to either request an extension of the credit limit or consider obtaining an additional credit card to maintain a favorable credit balance.
Maintain Old Cards or Accounts
There may be a temptation to close infrequently used old bank accounts or credit cards. However, it is advisable to keep these older accounts or cards active. Doing so showcases a long-standing relationship with a financial institution, underscoring a history of responsible repayments. Closing these longstanding accounts can have adverse effects on the credit score.
Regularly Monitor Your Credit Score
Frequent checks of your credit score ensure that you can promptly address any decline in the score. In the event of a drop, individuals should review their credit report to identify potential errors or inaccuracies. If discrepancies are found, it is essential to dispute them with the relevant bank or lender and ensure swift resolution. Given these considerations, consistent monitoring of your credit score is crucial.
Maintain a Well-Balanced Credit Mix
Credit bureaus often assign greater importance to secured loans like home and vehicle loans when calculating credit scores. Unsecured loans generally carry less weight, but with the growing prevalence of online unsecured loans, bureaus are adapting their algorithms to consider these loans more significantly. To ensure a well-rounded credit score, it is advisable to counterbalance unsecured loans with secured ones, which contribute to a higher score. Individuals with a diverse credit mix are viewed as less risky borrowers.
Monitor Joint and Co-Signed Loans
In the case of joint, co-signed, or guaranteed loans, consistent monitoring is crucial as an individual shares’ equal responsibility in the event of missed payments or defaults. It is imperative to regularly check the status of these loans to ensure that repayments are in order. Vigilance is necessary because any oversight on the borrower’s part could potentially impact the credit score of the guarantor and their ability to secure credit on favorable terms.
Refrain from Multiple Credit Applications
It is advisable to exercise moderation when applying for credit and related financial products. Submitting multiple applications for new credit cards or loans may raise concerns among lenders. The increased scrutiny that follows such behavior reduces the likelihood of approval. This is attributed to the perception that the individual is actively pursuing excessive credit, potentially leading to a higher debt burden and increasing the likelihood of challenges in meeting financial obligations.
Utilize One or Multiple Credit Products
Individuals without a credit history encounter challenges similar to those with a poor record. While it is still possible for a loan or credit application to be sanctioned, the interest rates may be elevated, or the terms may not be as favorable. Given this circumstance, it is recommended to possess at least one credit card to establish and sustain a sound credit history.
By comprehending the elements that influence a credit score and following the straightforward recommendations provided above, individuals can guarantee the preservation of a positive credit score. As credit plays an ever-growing role in our financial strategy, maintaining a favorable credit score is of utmost significance.
