From Good to Great: Tips to Boost Your Credit Score and Secure Better Loan Interest Rates

The credit score is one of the most crucial indicators of an individual’s financial health. Lending institutions can instantly judge an applicant’s credit rating by checking their credit rating. The better the score, the easier it becomes for an individual to get loan approval at lower interest rates and other favourable terms. Those who want to create a good score above 630 will find the following tips extremely useful:

· Review the Credit Report

Credit reporting agencies like CIBIL and Experian provide at least one annual credit report to each individual for free, and procuring one does not impact the credit score. Before applying for a loan, loan seekers must request and review their credit report closely and dispute any errors it might have. This is the quickest way to fix the credit score because the score was low due to a mistake in the report. Once the credit bureau corrects the error, the credit score gets a boost immediately.

· Setup Reminders for Due Payments

Make a list of all payment deadlines for each loan and credit card bill and set up reminders on a smartphone or online. Keep paying the due amounts consistently to create a score over time. Online lending institutions enable borrowers to provide e-mandate for deduction of loan EMIs from their account automatically. This ensures no EMIs are missed. 

· Make More Payments During a Billing Cycle

If affordable, borrowers and credit card users must pay more than the due amount at least a few times in a year. Doing that helps improve the credit score by reducing their credit utilisation rate.

· Contact the Creditors

If a borrower finds difficulty paying their loan EMIs and misses the payment deadlines, they must contact their creditors immediately before it gets too late. Most lending institutions will happily revise the repayment plan rather than letting the borrowers default on loan. Quickly addressing the issue will ease the consequences of high outstanding balances and late payments.

· Borrow Sparingly

Although taking loans gives more chances of repaying EMIs on time and building the credit score, it hurts the score if the repayment becomes difficult. Each loan application pulls a hard enquiry on the credit report, reducing the score by a few points. Over-borrowing increases the debt-to-income ratio and projects the individual as credit-hungry. Aspiring borrowers must evaluate their financial requirements and borrow sparingly to save their credit scores.

· Retain Unused Credit Accounts

Credit history’s length matters a lot. The longer the record, the better the personal loan eligibility. Retaining old accounts is advisable, even if the holder no longer uses them. These accounts will lengthen the credit history and increase the credit limit, reducing the credit utilisation ratio.

· Stop Paying Charged Off Debts

If a creditor flags a debt account as ‘charged off’, they have stopped expecting further payments from the holders. If the account holder starts making payments on charged-off accounts, it reactivates the account and reduces the credit score. That often happens when a collection agency is involved.

· Pay Off Maxed Out Debts First

Those using multiple credit accounts and cards and whose due amount is close to the credit limit must consider paying them off first to bring down the credit utilisation ratio.

· Diversify the Credit Portfolio

An individual’s credit mix, including credit cards, secured loans, unsecured loans, and other lines of credit, count as a significant percentage of the credit score. Adding different types of credit accounts in the portfolio helps improve the credit score as long as the borrower makes timely payments.

· Consolidate Debt

Applying for a new loan for debt consolidation may temporarily drop the score by a few points. Making on-time payments will quickly improve the rating and eliminate the debt.

· Manage Credit Utilisation Effectively

The credit utilisation rate is the revolving credit an individual uses divided by their available credit limit. It makes up a significant percentage of the credit score. So, it should be at most 30% on average to ensure personal loan eligibility. That means an individual with a credit limit of ₹ 5 Lakh should not use more than ₹ 1.5 Lakh.

These are a few habits that one must weave into their life to create score over time. These steps may not immediately boost the score overnight. One must implement them regularly to improve the credit score gradually.

About the Author
Amaira Sharma is finance expert and former business growth strategist who has more than 8+ years experience in the industry, now she helps others to get better financial stability and standards. She loves to write useful tips on personal finance and businesses.