A good credit score is an important factor when it comes to applying for credit cards and loans. A lender checks your credibility only after going through your CIBIL Report and subsequently your financial history. Your credit card score decides whether you have the potential to repay further loans or EMIs. Therefore, it was extremely important that you continuously keep a track of your credit score.
Your credit score is calculated basis the following components:
- Payment history – 35%
- Total amounts owed – 30%
- Length of your credit history – 15%
- Application for new credit – 10%
- Type of credit in use – 10%
From the above calculation, it is quite clear that your payment history and the total amount owed are the two biggest factors when calculating your credit score.
So, to increase your credit score keep two things in mind:
1. Be consistent with your repayments
Be vigilant and never miss the due date of your payment. Additionally, you can also set-up automatic payments in order to avoid any misses and prevent any effect on your credit score.
Missing a payment may seem harmless but the consequences are grave. The same would stay for years as a part of your credit history and affect your credit worthiness. Apart from credit card payments utility bills are also, important as missing those can affect your scores as well.
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2. Get rid of any existing debt
There is a term called debt to income ratio, which plays a crucial role in your credit score. Debt to income ratio is the amount of debt you have on the money you earn. If your debt to income ratio is high, then your score will be low. Bringing the debt to income ratio down will not only boost your score but also help you in successful approval of your future loan applications.
Keep your credit card utilisation rate low. Ideally, the same should not go beyond 30% of the credit limit. Keeping the card utilisation below 30% helps you consistently maintain a good score.
Do not make poor credit habits like applying for multiple credit cards and spending 50-60% of your credit card regularly. All these will add up and hamper your score significantly.
We cannot emphasise enough on the importance and the benefits of having a good credit score. A good credit score will not only make you a preferred borrower, it will also reap additional benefits in the end. During an emergency, you can easily get a loan and will not have to go through the ordeal of going to multiple lenders. So, always keep your expenditure and scores under check.
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