A credit score of an individual is the most important factor based on which banks decide if they must lend to him or not. With a low credit score the chances of getting a loan are practically low. We present you the Top 10 tips to improve credit score here. Keep them in mind and follow them. This is one sure way to make sure that you get a loan when you apply for one.
10 Tips to improve credit score
Tip #1: Always pay your dues on time
No lender likes to lend money to an individual who has a repeated record of missing his payments. This indicates lack of discipline and poor financial management. Whether it was intentional or due to genuine reasons is immaterial. If you have a frequent history of missing your EMI , you will definitely end with a low CIBIL credit score
Tip #2: Keep your credit owed within limits
A good ratio is not having your unsecured credit outstanding above 50% of your annual salary. Keep your credit card balances within 50% of the allowed limit. If you have Rs 1,00,000 as your limit, then it is wise to restrict your statement amount to Rs50,000.
Tip #3: Always pay your dues on time in full
This is one of the most important tips to improve credit score. On time payments improve your credit score tremendously. It carries almost a 40% weight on your score. So try not to miss your due dates for EMIs and monthly payments. Nobody likes a person who cannot keep up his word or timely payments of money owed.Especially banks. So pay in full and on time. Why should you pay unnecessary late fee charges and interest ?
Tip #4: Better to have 2 credit cards if you are a definite credit card spender
This is a good and bad advice on the same time. Credit score regulator CIBIL does not consider spending money on 2 credit cards as one. For a person with 1 lakh credit limit, it is an entirely different matter to spend Rs.80,000 on one card and spending Rs.40,000 on two different cards. In the first scenario, you are utilizing 80% of your limit which is bad. In the second,you are using 40% of your limit as its spread between cards. Now don’t go on a credit card shopping spree
Tip #5: Maintain a good mix of good and bad loans ie., healthy credit mix
House loans and business loans are considered good loans. Personal loans and credit are considered bad loans. That is why investing in a home loan if you are a spendthrift is a better decision.Listen to your wife or mom for God’s sake. You will have a good credit mix and will be building an asset.
Tip #6: Pay high interest loans and small loans first
It is a prudent decision to pay your home loans over longer periods. Pay off your personal loans, credit cards, private loans as they tend to have higher interest(typically 15-36%) with no asset creation. Home loans on the other hand are just 9-11% but build an asset. This is one of underutilized logical tips to improve credit score.
Tip #7: Close your unwanted Savings bank account
Many people tend to abandon their Savings accounts without closing them. If you have less than your Minimum Average Balance(MAB) then it starts to have a slow and minor effect on your credit score. Also whenever you finish a loan, get the loan closure certificate without fail.
Tip #8: Check your credit reports regularly
Credit reports can be availed for just Rs 500. You can obtain them from www.cibil.com. Just pay online. It is prudent to check it at least once in a year. So that you can seek clarification on any mistake and have it sorted. There have been cases when banks report you to CIBIL by mistake.
Tip #9: Monitor your co-signed joint accounts properly
There are instances when we co-sign a loan or maintain a joint credit account. One should be careful if this is the case when dealing outside the close family. You need to closely monitor the statements to make sure everything is in order. There is no use complaining if you chose the wrong joint holder and was careless at the same time.
Tip #10:Negotiate if you cannot pay on time
This is also one of best tips to improve credit score. People often know that they would not be able to pay their dues in advance. In spite of knowing, they do not take any action. If you know you will not be able to pay on time, negotiate with your bank. Banks will be willing to extend your loan period and reduce the EMI if they see a genuine customer. Instead of missing payments,spread it over a longer period.
Quite handy tips don’t you think ? Create awareness among friends by sharing these useful tips to improve credit score. If you follow these you can be assured to have a score of above 650 which will get you a loan when needed. Let us know the comments below.