Maintaining your Credit Score can get a little tricky. However, worry not! Here are some essential tips to keep your Credit Score up and running.
Ever wondered what makes your Credit Score so important? Whether you apply for a Credit Card or a Personal Loan, it’s virtually impossible to navigate through the world of finance without keeping your Credit Score handy. It bears testimony of your credibility and assures lenders of your worthiness when it comes to handling finances.
How Does A Credit Score Affect You?
Every time you look for a financial product, it’s your Credit Score that either makes or breaks the deal. With a good Credit Score, you can access almost anything from premium Credit Cards to long-term loans like Home Loans and Car Loans. You can even ask for lower rates of interest if you have a good Credit Score.
The situation is exactly the opposite for those with low Credit Scores. A low score may immediately disqualify you from receiving the high-ticket products and can raise your interest rates by a significant margin.
Additional Reading: These 4 Commonly-Held Credit Card Beliefs Are Hurting Your Credit Score
Factors That Make Up Your Credit Score
Your Credit Score consists of a bunch of factors and all of them have a role to play in determining your Credit Score.
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Payment History – 35%
Your payment history reflects whether you have made your payments on time. Although a few late-payments will not have a major ripple on your Credit Score, it’s best not to make any delay in clearing your outstanding dues.
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Outstanding Balance – 30%
Credit utilisation is the second biggest factor influencing your Credit Score. As your credit utilisation increases, your Credit Score goes down.
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Age of Credit Portfolio – 15%
The older your credit history, the better your chances of getting a high Credit Score.
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Credit Enquiries – 10%
Every time a lender pulls up your credit report, your Credit Score takes a hit.
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Credit Mix – 10%
Your outstanding loans and Credit Cards affect your Credit Score. Even though Credit Mix is usually not a key factor in determining your Credit Score, it’s always a good idea to have a healthy balance of Credit Cards and loans in your financial portfolio.
What’s A Bad Credit Score?
You need a Credit Score of 750 or higher to easily access financial products of your choice. A Credit Score that’s 550 or less is generally considered bad.
Additional Reading: 3 Things You Should Know About Your Credit Score
If your Credit Score is not where it should be, it’s time for you to up your game.
Here are some of the ways you can raise your Credit Score.
1. Review Your Current Credit Profile
As a first step, check your current Credit Score.
If the score is low, try to find out the reasons behind it. Is it because of a payment you missed or is it because of something else? When you download your credit report, don’t just stop at the Credit Score. Try to go through the entire report and find out if it needs repairing.
Additional Reading: How To Track Your Credit Score Like A Pro
2. Don’t Make New Credit Card Purchases
If your Credit Score is already low, it makes no sense for you to go about making new purchases on your Credit Card. New purchases will increase your credit utilisation ratio and make it even more difficult for you to get your Credit Score back in shape.
3. Clear Your Existing Dues
Your Credit Score will not see the light of day unless you pay off your dues and begin with a clean slate all over again. Since your payment history comprises 35% of your Credit Score, it’ll do you a world of good to never skip a payment again.
4. Don’t Close Unused Credit Cards
You might be thinking that you need to close your existing Credit Cards the moment you stop using them on a regular basis. Actually, no.
If you cancel a card, you lose some of the available credit that the Credit Card came with. That way, your utilisation ratio may increase and affect your Credit Score adversely.
5. Dispute Errors On Your Credit Report
If your credit report is showing an error, do not expect it to disappear magically the next time around. Instead, take it upon yourself to dispute errors and report them to the credit agency whenever you find one.
Is your Credit Score getting back on track? Want to find out what else you can do with this magic number? Here you go!