5 Tips on Maintaining a High Credit Score

Posted on Wednesday, December 20th, 2017 | By IndusInd Bank

A good credit score is an important factor in establishing creditworthiness. This score is a statistical representation of a person’s history of repaying their debts and the risk involved in lending money to that person. This is a yardstick by which lenders measure how financially trustworthy a person is before deciding whether or not they wish to offer them credit.

If you choose to apply for a credit card, the issuance of the card and the credit limit on it are based to a great extent on this score. Similarly, in case of a personal loan, your eligibility, approval of the loan, the amount to be sanctioned and the terms of this loan are largely dependent on the health of your credit score. If your repayment ability is healthy according to your financial profile, chances of approval and beneficial interest rates increase. Existing claims on your income and other loan obligations, however, reduce chances of approval. There are a number of factors that affect the credit score, and you must consider these aspects before taking any credit or loans. These include –

· Payment history – whether you could be trusted to repay an amount lent to you

· Amounts owed – whether or not there are existing claims on your income and how much debt you have incurred

· Length of Credit History – the duration over which you have used credit

· New Credit – the number of new accounts you apply for and the last account you opened are used to gauge your credit risk

· Types of Credit Used – whether you have a mix of different kinds of credit

With these factors in mind, you could maintain a good credit score by following these tips –

Check Your CIBIL Report

Regularly checking one’s credit report is an essential discipline that must be inculcated if you wish to maintain a good score. Not only does this help you follow your credit behaviour, but it also organizes and gives direction to your financial life. Especially if you have a low score, this habit will help you identify the weaknesses in your profile, which you could analyse and then work towards plugging. Also, it is not uncommon to have discrepancies or errors in your report, which have the effect of weighing down your score. Keeping a regular tab on your

reports and reviewing each account would help you easily detect any such discrepancies and resolve them in good time.

Use the Credit Card Wisely

It is always wise to try and maintain your credit card usage at below 30% of your monthly credit limit. Credit utilization is a major factor in influencing your credit score. If you are regularly pushing the upper limit on your credit card, you may be considered risky and your credit score is likely to go down. When you show high levels of dependence on credit, lenders may not be too inclined to extend funds to you.

Try to keep a low credit utilization ratio and accept offers to increase your credit limit as it helps reduce this ratio. Low dependence on credit bodes well for your profile and improves your CIBIL score.

Avoid Late Payments

Not only do you end up paying the penalty when you miss the date for a credit card payment or when you are late to pay the EMI on loan, but your credit score also suffers heavily, even in case of a single delay.

You must ensure that you have sufficient resources to repay any amount that you borrow and plan your income and expenditures to be able to determine how much EMI you can afford on a monthly basis before opting for a loan. Always ensure that you have the funds to pay for the purchases made through your credit card and never miss the minimum amount due on your credit card every month. Further, if you have numerous repayment obligations, which makes it difficult to track the due payment dates, consider making automatic debits through your account.

Good Credit Mix

By diversifying your portfolio into a sound mix of secured and unsecured loans, you could boost your credit score. Since the kind of loans you have opted for can swing your score, try getting a secured loan and paying off the unsecured ones first. A large number of creditors on your profile could lead to a drop in the CIBIL score.

Limit Applications

It is unwise to apply for numerous credit cards or loans, especially within a short time span. With each application, there is an enquiry into your creditworthiness, and if you show a high degree of dependence on credit, through multiple applications, your score is sure to plummet.