Your credit score shows how well you manage your borrowed funds. A good credit score ranges around 750 and shows that you are responsible with your finances. This gives lenders a reason to view you as a worthy and reliable borrower. Before you apply for any kind of loan, it is extremely important to check your credit score. While most people know the importance of a good credit score, many are not aware of how to maintain that score so that it does not fluctuate in the future. Here are 6 effective habits to follow to maintain your credit score and increase your creditworthiness.
1. Make timely payments
Timely payment is one of the best ways to establish yourself as a good credit risk to future lenders.
#BeOrganized: Organize all your bills in one easy to access place or folder so that you don’t misplace them or forget about them.
#Payment due dates: Pay attention to the payment due date. You can easily schedule an online payment through various bill payment options available in the digital market. Further, to avoid late fees and overdue interest, consider setting up account alerts for upcoming payments due and low account balances.
#Automaticpayments: Signing up for automatic payments is a boon when it comes to payments. Using automatic loan repayments from your deposit account in your respective financial institutions is a fairly simple and convenient way to regularly make your payments. Be sure to schedule them according to your pay schedule to ensure you have sufficient funds for the payment when it is drafted.
2. Manage your debt
Your debt is a key aspect when it comes to credit score which is why it is extremely important to manage it well. Every missed payment against your debt will have a negative impact on your credit score. Therefore, debt management is crucial, and it should be your first priority. However, not every kind of debt reflects on your credit score, for example, a credit card debt reflects on your credit score, any delay in repayment directly impacts your credit profile. Be judicious on what your spending on and how to manage it well.
3. Credit Utilization Ratio:
The credit utilization ratio is the percentage of how much credit you are using compared to how much is available to you. Experts say that you should use your credits in such a way that your credit utilization ratio should not exceed 30%. Your credit utilization ratio is the second most important factor after your timely payments which affects your credit score at a massive scale. In India, there are 4 credit bureaus that provide credit scores: Credit Information Bureau India Limited (CIBIL), CRIF High Mark, Equifax, Experia
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4. New Credit Card
Always approach new credit options carefully. You need to be sure as to when and why you need extra credit. Raising credit beyond what is needed is not advisable. It affects your debt to equity ratio, has needless interest charges attached to it, and also every credit check that a lender makes against your request goes on to impact your credit score. Every request for a credit card hits your credit score when the issuer asks a credit rating agency for your creditworthiness.
5. Do not take cash from Credit cards
This is a common mistake which most of us do without knowing about the ripple effect it will have on our credit score. Taking cash out of credit cards is a costly affair as the banks charge far more in interest for withdrawing money from a credit card than they do for making purchases. Cash advances from credit cards signal the lenders of your desperate need for money and mismanagement of wealth which hampers your creditworthiness.
6. Avoid exercising the Debt Settlement option
A lot of times, you approach your respective lenders to cut down the size of the debt. In return, lenders sometimes agree to reduce the loan amount or credit card dues to a certain extent. This process is called a debt settlement in ‘Credit’ terminology. Here is the catch, yes do get to free yourself from the debt burden, however availing such an option signal that you are incapable to pay the debt in full to the credit bureau. The bureau, in turn, will update in your credit report as debt settled, which adversely impacts on your creditworthiness.
Even if you don’t want a loan or credit card right now, you may need it in the future, so it is imperative that you are using your credit wisely. If you have a low credit score or none at all, you could still get a quick personal loan online through RupeeRedee. Not only will this help you access quick loans online for your financial needs but it would further help you maintain and it stronger for the future.