How can I improve my credit score?
The credit score is one of the critical factors that are taken into account by your lender before giving you a loan. It helps them calculate the chances of your ability to repay loans on time. If you have a low credit score, then your loan application is more likely to get rejected. So, to improve your credit scores significantly, you need to address a few factors appropriately. The first step is to have an exact idea about your credit score by checking your credit report. Your report will include the factors that are affecting your credit score so that you can work on them and improve them over time.
Various factors affect the credit score on a different scale according to their magnitude of importance. The repayment history of current and past loans and the credit utilization ratios are considered critical in most scoring models, with an effect of 50-75% of the total credit score value. Credit repairs require you to be patient and keep following a routine. This guide will take you to various steps that you can take to ensure that you become a more reliable applicant than those who do not follow them. It will help you benefit from availing loans at low-interest rates.
Seven steps that help improve credit score significantly:
1. Timely repayments:
The best way to improve your credit score is by making repayments on time. Even when you repay your loan after due dates, your score drops. Around a third of your credit score is entirely based on your repayment history. Moreover, to ensure that you make it on time, you can take the help of smartphones and other gadgets to set a reminder for the payment. Many banks provide auto-payment facilities to ensure that you do not miss making the payments and save you a lot of time and effort that you have to put in otherwise. Moreover, avoid taking multiple loans at the same time to prevent the situation of being unable to repay your loan on time.
2. Use one or two credit cards:
Keeping old credit cards can boost your FICO score. In case you have multiple cards, and you should consider giving up some of them and keep the oldest ones. If you use cards more often, then it shows your credibility. It can help you avail of different loans according to your requirements at lower interest rates. So, stick to a few cards and make sure to be more loyal towards the one or two credit card issuers. Barely using a card can reduce your credibility for the lender. Keeping older cards expands your credit history, and it makes you a more reliable applicant.
3. Keep a diversified portfolio of credit:
Expansion in your credit portfolio can help your lender feel secure in providing you with a loan, as it improves your creditworthiness significantly. The credit products that you can include in your portfolio are various types of secured loans and credit cards. Having only credit cards can not boost your score over time dramatically.
4. Try making advance payments for your credit cards:
It is good to make prepayments before the due date so that it can reduce the chances of debt reporting in your credit reports. Sometimes, you may have paid your loans on time, but it may not be reported on the same day. So, it is good to make it before time. You can prefer making payments during the mid-time of the billing cycle, instead of waiting for the last date. Also, try not to take loans that go beyond the 35% threshold.
5. Do not spend beyond your credit limit:
For making credit repairs, you need to stop borrowing too much money. Your FICO score gets affected if you take huge loans from the lender as it can depict a significant inability of payment for further loans. It can affect your loan application, and you might be charged more interest rate for the loan. Try to keep your spending below 35% of your credit limit to improve credit score.
6. Opt for a longer tenure while availing a loan:
By opting for a longer tenure, your FICO reduces significantly, it allows enough space for you to make the repayments on time quickly. It ensures lenders that you can pay irrespective of any unstable condition that might pop up during the tenure duration. Reduction in a time frame not only increases your FICO, but it also leaves you with less capital availability by binding you with timely repayment. If the gap between your monthly income and FICO increase, you can avail of a loan at lower interest rates.
7. Rectify mistakes in the FICO reports by checking them:
Verify your reports from timely, to ensure that you do not make any error in updating your records of payment, and there is no incorrect information displayed in your credit report. Due to personal or technical reasons, your report might have an impact on your credit score.
considering the above points and applying the steps correctly, you can turn the tables towards your side in the next fiscal year. Maintaining creditworthiness is considered as a good habit of an applicant, and it significantly improves your chances of getting better loans at lower interest rates. So, get started with the steps and improve credit score to avail benefits from the lenders.
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