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How to Improve Your Credit Score

Your credit score plays an important role in your financial health. Lenders consider your credit score while processing a loan or credit card request and also while setting the interest rates on loans. A credit score of 750 and above is usually considered good and shows that you manage your credit responsibly. Hence, maintaining a good credit score is a crucial part of your financial wellbeing. However, if you have a poor credit score, you still have the chance to improve it. Let’s talk about these ways to boost your credit score.

Check your credit report at regular intervals

The credit report is the summary of your credit profile and tells how you have handled your credit. It includes details like your past credit accounts, EMI payments, pending dues, new inquiries and more. Your credit score is calculated based on the several factors included in your credit report. 

Since credit reports are generated on the basis of information shared by the lenders, sometimes your credit report may contain certain wrongful details due to clerical errors. Such errors in your report can adversely affect your credit score. This is why it is important to review your credit report at regular intervals and immediately notify the bureau/lender and request them to rectify the errors. Even if your score has been reduced due to erroneous details, rectifying the same will improve it in the course of a few months.

Suggested read:Credit score myths that can harm financial health

Pay your bills or EMIs by the due date

Out of all the factors that affect your credit score, payment history has the highest weightage. It is one of the most significant factors that are considered while calculating your credit score. Post the due date, the number of days you go without paying your bills is shown as ‘days past due’ in your credit report. Frequently missing the payments can have a significant impact on your score. This is why you should always pay your credit card dues or EMIs on or before the due date to maintain a good credit profile. Paying your bills on time will not only boost your credit score but also save you from paying high-interest charges. 

Maintain a good Credit Utilization Ratio (CUR)

Each credit card comes with a credit limit and it is the maximum amount that you can use on your credit card. It is important to use your credit limit responsibly in order to maintain a good credit utilization ratio (CUR). The more credit you use, the higher will be your CUR. You should never max out your credit limit and keep a check on your CUR in order to maintain a good credit score.

If you think that the current credit limit is too low and you end up maxing out your cards frequently, you can contact your card issuer and ask them to increase your credit limit. However, it depends on your card issuer to reject or approve your request based on your eligibility. Alternatively, you can also apply for a new credit card to lessen the burden on a single card. This can help you maintain a good CUR and improve your credit score. 

Don’t apply for too many cards

Applying for too many credit cards within a short period can have an adverse effect on your credit score. Whenever you apply for a credit card, a hard inquiry is initiated on your profile, which can temporarily lower your credit score. Therefore, applying for too many cards within a short span is not a good practice.

Also, applying for multiple cards makes you look credit-hungry, and card providers don’t like to give credit cards to people, who have a bad credit history. It is advisable to wait for at least six months before applying for another credit card. Restricting the number of hard inquiries shows that you are not credit hungry and can manage your current credit limit wisely.

Do not close your old credit cards

While calculating your credit score, the age of your credit history is also given some weightage. The older your account is, the more favorable you appear to lenders. This is why, closing an old credit card that you are not using, would not be a smart move. When you close one of the oldest credit card accounts, the average age of your credit history comes down which may lower your credit score significantly.

So, these were some of the ways to improve your credit score. Even if you are new to credit, you should consider getting a low or no annual fee credit card and start building your credit score as it is important to have a good credit score when you apply for a loan or a credit card. 

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Printable version | Sep 11, 2022 4:47:38 am | https://www.thehindu.com/brandhub/how-to-improve-your-credit-score/article65726583.ece