Did you know that only 21% of Indian consumers have a credit score above 750? According to a survey by CIBIL, a leading credit bureau in India, over 80% of loan applications are rejected due to low credit scores. Your credit score not only affects your ability to get approved for credit but also impacts the interest rate you’ll receive. For example, a difference of 100 points in your credit score can mean a 1.5% difference in the interest rate you’ll receive on a loan.
Let us discuss what credit score is, the factors that affect it, and tips for improving your score. If you’re looking to improve your credit score and increase your chances of getting approved for credit, keep reading to learn some tips and tricks. Let’s get started!
What is a Credit Score?
A credit score is a three-digit number that represents your creditworthiness. It is based on your credit history, which includes your payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries. The credit score is a numerical expression of your creditworthiness and ranges between 300 to 900. A higher score indicates that you are more creditworthy and lowers the risk of defaulting on a loan or credit card payment.
Factors That Affect Your Credit Score:
1. Payment History:
It is the most critical factor affecting your credit score, which includes timely payment of EMIs and credit card bills. Missing or late payments can severely affect your credit score.
2. Credit Utilization:
It is the ratio of your credit card balance to your credit limit. High credit utilization indicates a higher risk of default, which can negatively impact your credit score.
3. Length of Credit History:
A longer credit history indicates that you have a more extensive credit experience, which is beneficial for your credit score.
4. Types of Credit:
Having a mix of credit, such as a personal loan, credit card, and car loan, indicates that you can manage different types of credit, which positively impacts your credit score.
5. Recent Credit Inquiries:
Applying for credit frequently can indicate that you are credit-hungry and can negatively affect your credit score.
Tips For Improving Your Credit Score:
1. Pay Your Bills On Time:
Late or missed payments are the most significant factors that affect your credit score negatively. Ensure that you pay all your bills on time.
2. Keep Your Credit Utilization Low:
Credit utilization is the ratio of your credit card balance to your credit limit. Keeping it below 30% indicates that you are a responsible borrower and can positively impact your credit score.
3. Maintain A Good Credit Mix:
Having a mix of credit, such as personal loans, credit cards, and car loans, indicates that you can manage different types of credit, which can positively impact your credit score.
4. Check Your Credit Report Regularly:
You can request a free credit report once a year from each credit bureau in India. Checking your credit report regularly can help you identify errors and fraudulent activities that can negatively impact your credit score.
5. Avoid Frequent Credit Inquiries:
Applying for credit frequently can indicate that you are credit-hungry, which can negatively impact your credit score. Avoid applying for credit unless necessary.
6. Close Unused Credit Cards:
If you have multiple credit cards that you do not use, consider closing them. Having too many credit cards can negatively affect your credit score.
7. Negotiate With Creditors:
If you are struggling to make payments, consider negotiating with your creditors to restructure your debt or payment plan. This can help you avoid defaults and negative impacts on your credit score.
Improving your credit score is not an overnight process and requires patience and discipline. By following these tips and being responsible with your credit, you can improve your credit score and increase your chances of getting approved for credit at lower interest rates. A good credit score is not only beneficial for borrowing money, but it also reflects your financial responsibility and can have a positive impact on various aspects of your financial life. So, start working on improving your credit score today and enjoy the benefits of a healthy credit score in the future.
These tips are brought to you by the Expert Financial Planners at HappyWise Financial Services. For any assistance in investment planning for your financial future, feel free to reach out to the Experts at HappyWise on Whatsapp or Email.