10 Ways to boost and improve your Credit Rating Score
Many of us think that we can boost and improve our credit rating score in the short term. While it may not be possible to improve credit score in the short term, you can do that in a year by following simple tips and guidelines. You cannot ignore credit score as it plays a vital role in your financial decisions such as housing loan, personal loans, credit card application, etc. When you understand about credit score and how it works, you can try the ways and means to improve your credit rating.
What is Credit Rating Score ?
A credit score is a number between 0-1000 determined by the credit bureau that shows how you manage your financial obligations. In simple words, it indicates how promptly you make payments for your credits.
What constitutes Credit Score Rating?
35% – Payment history
30% – Total money owed
15% – Length of the credit history
10% – New credits taken
10% – New credits inquired and applications in process
What is a good credit rating score?
How to improve Credit Rating Score?
Follow these simple steps to improve your credit rating score.
1) Make your payments on time: Making payment consistently would improve your credit score over a period of time.
2) Pay in full: When you make your monthly payments, making sure you pay in full which can improve your credit score. E.g. if you have credit card payment of Rs 10,000 to be done this month, but you make payment for a minimum due amount or anything less than Rs 10,000, your credit rating would get affected. This indicates that you are not able to handle your financial obligations.
3) Check credit report regularly: Checking your credit report once or twice in a year can help you to manage your credit better and look for improvements. You can also point out any mistakes in your report so that these are rectified immediately.
4) Maintain low credit balances: Using low credit balances is always good to boost your credit score. E.g. if you have a Rs 50,000 credit limit on your credit card and if you use Rs 40,000 every month, your credit rating might be low, but if you use say Rs 20,000 or less your credit rating would be high. It is due to the fact that you are using less credit balances.
5) Pay small debts: While you focus on large debts for payment, each transaction is treated separately and your credit score would get impacted. E.g. if you have high housing loan EMI and small consumer loan payment to be made and if you honor housing loan, but ignore or miss to make consumer loan payment, it would affect your credit score.
6) Old debts are good: You might be having older debts and you may want to pay off them quickly. You can rethink about your decision. When you pay your old debts on time, it would boost and improve your credit rating. This indicates that you are in control of your financial obligations for longer period.
7) Don’t apply for too many loans or credit cards: Fewer debts would help you to have a good score. When you have too many loans or credit cards, it is difficult to manage and hence there are chances that your credit score would get affected. E.g. one of my friend had taken more than 5 credit cards. He took because banks were giving it for free. I have been warning him to be cautious. He has been using some of the credit cards without any tracking. Later he applied for a home loan. Banks approved his home loan for a higher rate of interest, citing that his credit score was high. He was not making payment for some of the credit cards which he was using. Since he had too many cards, he was not able to track the purchases and make the payment on time. Now he is paying a huge interest rate due to such small discipline.
8) Set reminders for your credit payments: I have set an SMS/Email alert reminders for my ICICI credit card and Citibank credit card payments. It alerts me twice before the payment due date. While we may follow discipline, you may slip-up sometimes. This small tip can help you to make the payments on time and boost your credit score.
9) Convert credit card debts to personal loans: If you have huge credit card payments to be made due to some reasons, you can make a choice in converting them to personal loans. Many banks offer such facility. I got an electronic item on credit card and bank called me that they can convert such big amount to 6 interest free EMI’s. I was quite surprised. They had charged nominal processing fees for that.
10) Maintain a healthy mix of credit: Having too many credit cards or too many loans could reduce your credit rating. Have a healthy mix of home loan, personal loans, credit cards, etc so that your payments, credit history can be ascertained properly and correctly by a credit bureau.
Conclusion: Rebuilding a credit score or credit rating is a big exercise, but it is possible to build over a period of time with discipline. There is no point in ignoring small mistakes and pay huge interest rates when you are in need. These simple tips can help you to improve and build a good credit score.
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Ways to improve your credit score or rating
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