5 ways to maintain and improve your credit score

In today’s day and age, credit worthiness has come into the forefront in playing a crucial role when a person fills in an application for a loan or paying back debt. When considering a person’s credit history, credit score plays an important role.

A credit score is a number, which indicates your financial standing and can be calculated by only a certified Credit Information Company (CIC). Each CIC has it’s own method of calculating a credit score and takes into consideration the entire history of all your financial transactions while doing so. It is an on-going process and even the smallest changes in your financial transactions – ranging from credit card bill payments to paying home loan EMIs – may have a huge impact on the credit score.

Here’s how you can improve your credit score –

1. Eliminate those credit card balances

The most common reason for having a poor credit score is pending credit card balances. Keep a tab on all your upcoming credit card payments and pay them off before time! Even if you miss one deadline and pay off the bill later, it reflects as a delayed payment on your credit report, which could cause problems when borrowing much-needed loans.

2. Avoid taking debts from multiple sources at a time

Even if you are paying off all your loans on time, the fact that you have multiple loans running simultaneously is an indicator of poor financial management and does not work well for your overall credit score. Prioritize and take loans only if you truly need it.

3. Pay all your bills before the deadline

A delayed payment on your insurance, electricity bill and phone bill will also reflect poorly on your overall credit score. By paying your bills on time, you can ensure that you eliminate all the delayed payment marks from the credit report and create a good financial standing.

4. Avoid becoming a loan guarantor

Becoming a guarantor for someone’s debts is the riskiest financial decision and can affect you in many ways if the borrower defaults on their payments. A default in paying loan EMIs on time will not only affect the borrower’s credit score, but also has a direct impact on the loan guarantor’s credit score too. This is why it’s best to avoid becoming a loan guarantor.

5. Consolidate your debts and credit cards

If you have multiple loans or credit cards from the same lender, then consider consolidating them into one loan/ credit card account. You can do this by consolidating the newer loans and credit card accounts with the older ones. This will help boost your credit utilization ratio without reducing your total credit limit. Remember, less number of loans and credit cards with the same credit limit is always better than having multiple credit cards and loans.

Here is how you can work on maintaining a good credit score –

1. Keep a tab on the number of credit cards you have

Each credit card you own is considered potential debt. Hence, it’s advisable to close all credit cards that you are sure you won’t be using in the near future. When applying for the closure of a credit card account, make sure that the credit card company/ bank informs the credit bureau. Once closed, don’t forget to check your CIR to ensure that it has been updated.

2. Keep checking your Credit Information Report (CIR) regularly to ensure that there are no errors

More often than not, Credit Information Companies err in their calculation of credit scores and may not update your credit information regularly. Don’t rely on them to do a perfect job all time. Keep a tag of your CIR every six months by evaluating the entire report thoroughly and get all the anomalies corrected.

3. Avoid closing your older credit accounts

A very important aspect of maintaining a good credit score is having a good credit age. This translates into – the longer you have an account open, it adds to your credit history. It has been noticed that people who have accounts open for a longer duration tend to have a better credit score than people who frequently open and close credit card accounts.

4. Avoid job-hopping

If possible, stay with the same employer for a longer duration. Job-hopping usually indicates financial instability and may have a negative impact on your credit score.

5. Create an emergency fund

It is always advisable to maintain a 15% cushion of available credit in case of an emergency. This way you don’t need to borrow more than what you are comfortable repaying.

We hope you make the best of these tips to improve and maintain your credit score. Lastly, in the case of a discrepancy with your credit score or Credit Information Report, please contact your lender and Credit Information Company immediately.

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