Lenders keeping you at arm’s length due to a low Credit Score? Don’t worry! Here are tips that will boost your score in no time.
Although Aadhaar may have recently taken a backseat, your Credit Score will always be the driver for your loan and Credit Card applications. If your Credit Card and loan applications are getting rejected due to an abysmal Credit Score, you are not alone. There are plenty of others who are being denied credit because of a low score. The question is how can you swiftly get your score ticking?
The secret to improving your score lies in checking your credit report. Want to check your credit report and score for free? It’s right here!
Now that you have your report, you need to understand what makes up your score and where you are slipping up.
Credit Score Elements
There are a total of 5 factors that influence your Credit Score. They are payment history, card utilisation, age of your accounts, credit enquiries and number of accounts that you hold. Look at each of these in your report and find out where you score low.
Based on which factor is pulling your score down, here are some steps you could follow to get your score up.
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Payment History
What?
Missed your Credit Card bills and EMIs? If yes, then you would have scored low on payment history. Payment History measures your on-time payments.
How much?
What’s the weightage of this factor in your Credit Score? It’s a good 35%! So, this has a big influence on your Credit Score. Note that missed payments stay on your credit report for over 5 years.
Additional Reading: Why Your Credit Score Isn’t Improving
What to do?
You just need to pay all your bills on time to improve your score. You could even split your bills and pay twice a month. Also, if you have any Credit Cards with outstanding balances, you can close them. This will help improve your score quickly. This is especially true for your older cards that you don’t use anymore. And set a reminder on your phone so that you never miss a payment again.
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Card Utilisation
What?
Used up all your credit limit? Then, the card utilisation factor of your Credit Score would have pulled your score down. This factor measures the outstanding balance on your Credit Card with the total credit limit for the card. Lower the ratio, higher will be your score. Even though the ratio may not be mentioned in the report, you can calculate it based on information in the ‘Account Information’ section of your report.
How much?
This factor has a weightage of 30% on your score! So, keep an eye on your card utilisation.
What to do?
In case you have a low card utilisation ratio, you can ask your bank to increase your credit limit or go for a new Credit Card. This will increase your overall credit limit, which in turn will improve your score. You can also use multiple Credit Cards when you are making spends. This will spread your expenses across your cards ensuring that your average credit utilisation remains good. Ideally, your card utilisation ratio should be lower than 30%.
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Age Of Accounts
What?
Have you been paying a loan for more than 10 years? Then, your ‘age of accounts’ score might be high. This factor measures the age of your total credit history.
How much?
15% of your credit score comes from this factor.
Additional Reading: Credit Score – Frequently Asked Questions
What to do?
Don’t close those old Credit Cards! Use them for paying utility bills. The older the card, the better it is for your Credit Score. Here’s another thing that you could do.
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Credit Enquiries
What?
If you’ve never applied for too many Credit Cards or loans you would most likely have a high score. ‘Credit enquiries’ measures the number of times banks and lenders checked your Credit Score. Your score will go down marginally every time financial institutions check your score.
How much?
10% of your Credit Score comes from this factor.
What to do?
The best way to score high is not to apply for too many Credit Cards and loans at the same time. Also, always check your eligibility before applying for a loan or a Credit Card. This will ensure that your get the loan or card and you don’t have to apply for it again.
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Total Accounts
What?
Got different types of loans and Credit Cards? Then, you are sure to have a high score in the ‘total accounts’ section of your credit report.
Additional Reading: Why Your Debt-To-Income Ratio Is As Crucial As Your Credit Score
How much?
10% of your credit score comes from this factor.
What to do?
If you have only one loan, adding other types of loan accounts will help improve your score. If you don’t need loans, then you could add yourself as a co-borrower for your spouse or parent’s loan account to help improve your ‘total accounts’ score.
The more the number of accounts, the better your score will be. However, if you are the responsible kind, it’s better to try and improve your score in other areas rather than taking on too many cards or loans.
Get yourself added as a co-borrower for your spouse’s or parent’s loan account that they have been paying for a long time. But before that ensure they have a good Credit Score and always pay their loans on time.
Identified your follies? Get going and fix them right away! Think a Credit Card or loan might help? A variety of them are waiting for you!