Divya Kapoor
A credit score is a three-digit numerical representation of how an individual has handled his debt and its creditworthiness. It is calculated by the credit agencies who receive data about various borrowers regularly from banks. They use a certain formula and assess the information about the number of credit applications made, present outstanding balance, credit limit utilized and the history of credit repayment.
A good CIBIL score is an important factor when you go for a new loan. So in case your credit score is low and you plan to take a loan in the future then you should get going with the following steps:
1. Accurate Credit Report: First of all fetch your credit report and check with utmost care that each and every information entered in the report is correct and accurate or not, the information about past and present accounts are correct, the list of late payment is right or not etc. In case of any error file the dispute right there, and in case of multiple errors, you need to file as many disputes.
2. Point the discrepancy: Simply disputing the error is not enough, you need to point out what error it is and what needs to be corrected. However, you must also note that it is possible that your score remains bad even after correction this is due to the weight given by credit agencies to various kind of information like payment history, the age of accounts, amount of debt etc.
3. Keep a close eye on Credit Card balances: Each credit card has a credit utilization limit, keeping your credit card balances low is important to keep the credit utilization ratio in check. The ideal ratio is 30% or lower.
4. Eliminate multiple cards: In case you have various credit card balances, even if with low outstanding balances, it is better to pay them off and keep one or two card. As to calculate credit score the number credit cards having balance is also an aspect considered by credit agencies.
5. Always pay on time: Correct your late payments, by ensuring it does not happen again. You can set up an alert for payment on the due dates or you can set-up automatic payments where there is fixed EMI to be paid each month.
6. Don’t take Risk: In case your score is too low it is better to not take any risk like missing payments or suddenly paying less than what you normally do. Also, cash advances on credit card any other transaction that indicate future money stress like pawnshop etc., is something you should avoid.
7. Get a first credit card: In case you never had a credit card then your score is likely to be suffering due to lack of mix in your credit. Thus, you should get a credit card as soon as possible.
Improving a bad credit score takes time, it is not something that can happen within days or weeks time. Thus, you have to be constant in your efforts, and it will be worth it. The above tips will save you a lot of time, energy and money and get you in the regime of managing your debt properly.
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