Your credit score is an important indicator of your credit health. When reviewing your loan application, lenders refer to this score to assess your potential to repay loans.
A credit score is a three-digit number ranging from 300 to 900. It is calculated based on your credit report, which includes your payment history, credit enquiries, number of credit accounts, credit utilization ratio and age of your accounts. A score of 300 to 600 is considered poor or low, while a score of 750 to 900 is considered healthy.
A healthy credit score not only increases your chances of getting a loan conveniently but also empowers you to negotiate better loan terms. On the other hand, a low credit score can make it challenging to get a loan. If you do get one, you may have to settle for a higher interest rate.
If you aspire to take a loan but have a low credit score, here are a few steps you can take to boost it.
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Check your credit report regularly
Your credit score could be low due to various reasons – payment defaults, multiple credit requests, reports not being updated despite dues being cleared, etc. Regular credit report checks can help you keep track of errors in your credit activity, which can be flagged to the concerned credit bureau for rectification.
Pay off your dues on time
Timely payment of credit dues is among the most effective ways to build a healthy credit score. You can set payment reminders on your mobile device or standing instructions with your bank so as not to miss payment dates. Remember, missed or late payments will reflect on your credit report and lower your credit score.
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Keep your credit utilization in check
Credit utilization ratio (CUR) is the ratio of credit currently being utilised by you versus the total credit available to you. Always aim to maintain a CUR of 30 per cent or below for a healthy credit score. Keep in mind that CUR is one of the most significant factors influencing your credit score. A high CUR can indicate overspending and adversely impact your credit score.
Minimise hard enquiries
When you apply for a loan or credit card, the lender or issuing company will check your credit report while reviewing your application. This credit report request made by the lender is called a hard enquiry. Multiple hard enquiries can project you being credit hungry and negatively impact your credit score. If you are trying to build your credit score, avoid applying for multiple lines of credit.
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Check your credit card before closing it
Always check a credit card before closing it. Credit cards help in building your credit score. If you hold a credit card with a good payment history, try to retain it.
A low credit score is not the end of the world. Improving your credit score is possible, though it may take time. Commit to paying your dues on time, revise your spends to stay within your credit limit, and don’t miss your EMIs. A little discipline can go a long way to improving your finances.
