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  • How to Improve Credit Score

    Credit Score plays an important role when you apply for a loan or credit card. It is a 3 digit number that reveals the creditworthiness of an individual to banks and other financial institutions.

    Credit Score is calculated using your credit history, which contains information such as your payments history, number of loans or credit card used by you, etc. In India, there are 4 major Credit Information Companies, namely CIBIL, Experian, Equifax and Highmark.

    A high credit score increases your chances of getting a loan or credit card and a low score completely ruins it. Banks do not like to give loans or credit cards to people with a low score because they do not trust them with their money. Despite having a low score, if you get a card or loan, then your credit limit may be low or you might have to pay a very high rate of interest. To prevent this, you must improve your credit score.

    Ways to Improve/Repair Credit Score:

    There are different ways using which you can repair your credit score. Some of them are as follows:

    1. Check your Credit Report

      One of the important things that you must do to improve your score is check your credit report. Doing this will help you in identifying errors in your report. If you find mistakes in your report, you must get it rectified immediately. As the credit score is calculated based on the information mentioned in the credit report, it is very important for you to ensure that this report is free of errors.

    2. Pay outstanding bills

      If you have any outstanding credit card bills or loan, you must pay it off immediately to repair or improve your score a bit. Payment history is one of the factors that is taken into consideration while calculating the credit score. If you have a history of delayed payments, then your score will be low and vice-versa. It is a good idea to activate payment alerts or auto debit facility to ensure that you always pay your credit bills or EMIs on time. Also, avoid paying only the minimum amount due on your credit card always as it will increase the outstanding balance of your card. Try to pay the full bill to keep the outstanding amount low.

    3. Credit Utilization

      It is another major factor that is considered while calculating the credit score. The amount of credit that is available to you versus how much of it you are using shows your dependency on credit money. It is advisable that people keep their credit utilization below 30%. So, if you have multiple credit cards, keep a check on how much money you are using on credit. Also, try to find a credit card issuer who will accept multiple payments in a month.

    4. Do not remove old accounts from report

      Some people tend to remove old accounts or deactivated accounts or accounts with negative history from their credit report to make it look good. Some even try to get their old debts removed from their reports once they pay them. This may not be a very smart thing to do. Agreed that negative things are bad for the score, but they are automatically removed from the credit report after a period of time. Getting old accounts removed may harm your score a lot as they may have a good repayment history. Also, if you have paid your debts, then you should keep them in your report as they will improve your score and also show your creditworthiness.

    5. Plan your credit

      Many people whose scores fall drastically are ones who do not plan their finances well. If you apply for too many credit cards just to increase your credit limit, but are unable to pay the bills off on time of all of them, then you will be left with a huge outstanding balance and history of delayed payments that will decrease your score by a lot. Also, applying for unplanned loans can leave you in a very bad financial state, if you are not able to repay them. Thus, it is important to plan credit and apply for a credit card/loan only if it is absolutely required and when you are sure that you will be able to repay the amount you borrow.

      Credit score cannot be repaired in a day or two. It requires time, patience and planning. Once your credit score improves, try to not make any mistakes that will harm it. If you do not have a credit score at all, then try to build it by applying for a regular or secured credit card.

    6. Top 10 things to know about your Credit Score

      Once indebted, you are under close watch by financial institutions. No transaction made by you in the credit market will go unnoticed, and the same is recorded and maintained in your Credit Score. The scores may range anywhere from 300 – 900, 300 meaning you have an appalling score and 900 meaning that you’re every lender’s dream customer.

      Although simple to comprehend, there are a lot of myths revolving around it.  Here are 10 facts regarding Credit Scores.

      • Your Credit Score has nothing to do with your income, savings or investments. It is simply your debt activities and credit history, all summed up into a number that can usually articulate whether you’re a good debtor or not.
      • Checking your Credit Score does not affect the score itself. So, don’t worry about the score declining, check your Credit Score here.
      • Although defaulting your payments are reflected in your Credit Score, no data will be published on public forums. Only companies enquiring about a certain individual will receive the score.
      • Closing an active or inactive credit card will reflect in your Credit Score. It may either decline or incline but the reason for the change in the score will not be mentioned.
      • Your Credit Report can’t be edited or altered. The score will be updated as and when you perform a financial activity. From closing an account, defaulting on your payments, repayment, or any other activity, your score will be reflected accordingly. But, no alterations can be made on your report.
      • Credit scores are only the first impression of you to a lender and not the sole dictator of your loan approval. Different institutions and lenders have different screening processes to approve a particular loan.
      • As opposed to the common myth, you cannot apply for a credit score. If you’ve had a loan account, a credit card or have applied for a loan, your credit score will be available to credit companies.
      • Payments defaulted more than 3 years ago will not be taken into consideration while determining your Credit score. So you don’t have to worry about the payments you’ve defaulted on several years ago.
      • Taking too much credit can be detrimental to your credit score. Even though you may make your payments on time, an excessive credit will cause damage on your score.
      • Your credit utilization ratio too affects your credit score. The closer you come to your maximum limit on your card, the more likely you are to cause damage to your score.

      Who has access to your Credit Reports?

      Although not many people can access your credit report, a few individuals and institutions who legitimately requires it may have access to it. If a company has a genuine business requirement with you, it is safe to assume that they have access to your credit report and score. Here’s a list of some of the institutions and individuals that have access to your credit report.

      Banks – Quite naturally, banks can gain access to your Credit Report to gauge your credit worthiness. You don’t necessarily have to have a credit card for banks to have access to it. Your credit worthiness may be examined if you’re applying for a loan or even opting for an overdraft facility as this is considered to be a line of credit as well.

      Creditors – Anyone willing to loan you money will have to determine your credit worthiness before they put their faith in you. Credit card issuers and mortgage lenders are amongst a few that fall in this category. Determining your credit worthiness helps the creditor gauge if you’re capable of repaying the loan and helps the creditor determine the terms and conditions of the same. Generally, the better your credit score, the more likely you are to get a loan approved and attain favourable terms when it comes to repayment and interest rates.

      Insurance Companies – Statistically, it shows that individuals with poor Credit Score are more likely to file a claim. Insurance companies often measure your credit worthiness to determine how much they need to charge you for a new policy.

      Employers – Several employers now use credit reports to judge an employer’s honesty and integrity when it comes to finance. It can also be used to assess the risk of bribery pertaining to an employee as people with a lot of debt are more susceptible to bribery. In some cases, the reports can be a decisive factor when it comes to promotions and demotions.

      Government Agencies – Government agencies who have a legitimate requirement to pull up your credit score may do so. In the event that you’re applying for government benefits, court order, conducting business with the government, or any such instance, the government may pull out a report to understand your financial standing.

      News About Credit Score

      • RBI’s Initiative to Track Credit Quality

        Mounting bad loans have turned to be the worry for many of the Indian lenders today. When the economy faced three year’s economic slowdown, bad loans prohibited many of the banks to aid in credit growth. In light, to that the reserve bank of India (RBI) has constituted a ten-member task force to build a public database of credit information. The team will also include expertise from European central bank, World Bank and many other monetary bodies.

        The enthusiast team will analyze the recent availability of credit information across the nation. The team will then try to fill the void with public credit registry. Not only that, the task force will also scrutinize international practices on public credit registries. This will help them to decide the scope and finalize the structure of information system. Based on all the gathered report, the team will develop a real-time PCR that is transparent and comprehensive.

        To figure out, the huge credit exposures of lender, the task force has already created a central repository of information, which has brief statistical return database with detailed information on the efficiency of the credit. The first report from the panel will be submitted on 4 April 2018. So all together, a credit registrary will enhance the ease of doing business, heighten the efficiency of credit market, improve financial inclusion and control delinquencies.

        23rd November 2017

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