Credit score: how to improve your credit score

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The ability to get a loan depends on how one has handled credit in the past. A low credit rating would mean stress while getting a higher loan amount sanctioned for a critical purchase. It is therefore important that one has a reasonable credit behavior with a good repayment history.

Create a credit history

Not having taken out credit or a loan in the past does not mean that you have a good credit rating. In fact, if there is no data to track the credit behavior of the customer, the credit score in such cases tends to be lower. It therefore makes sense to use the credit card diligently, to take loans over a short and long term period of time to create a good credit history. This helps the customer benefit from a competitive interest rate and/or amount for a larger loan.

Refund history

Building a good credit history involves following healthy credit repayment habits, paying credit card bills before due dates and paying loan installments on time. Setting up reminders and creating direct debit mandates for these payments allows for timely action and thus increases the credit rating.

Check loan amount used at once

It must be ensured that even if the loans are granted over a period of time, they avoid taking different forms of credit at the same time. For example, an outstanding car loan, combined with an EMI for credit card dues and a personal loan at the same time, can reduce the ability to qualify for more credit. It is prudent to close one loan and then take the next one to show sufficient liquidity and ability to repay the loans on time.

Points to note

  • Multiple loan applications from different credit agencies also negatively affect credit rating.
  • If there are data errors in the credit report that affect the credit rating, one can seek the rectification of the same from the credit rating agency.

Content on this page is courtesy of the Center for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

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