So, you're eyeing that dream car or house, but there's this little hurdle called a credit score, right? We've all been there.
A good credit score is like your golden ticket— it's your entrance to the world of smooth loans, friendly interest rates, and, yes, that beautiful car or home. But how do you ensure that this 'golden ticket' stays golden? It's not rocket science, but it does require some smart choices.
Additionally, take a look at the credit solutions provided by Shriram Finance. Shriram Finance personal loans can assist you in effectively managing your credit score, gradually improving it step by step.
Here are 5 easy-peasy habits that can help you ace that credit score game. Simple, doable, and effective. Let’s get started!
The Five Habits to Maintain A Healthy Credit Score
Maintaining a healthy credit score is crucial for your financial well-being. Keep your credit score high with these five habits
1. Monitor your credit utilisation ratio
Credit utilisation, the ratio of your credit card balances to your credit limits, is a vital factor in maintaining a healthy credit score. Keeping this ratio below 30% is recommended.
High credit utilisation can suggest financial strain and negatively impact your credit score.
For example, if your total credit limit across all credit cards is ₹10,000, it's wise to keep your outstanding balances below ₹3,000. Regularly monitor your balances and aim to pay down debts to improve your credit utilisation.
Lower ratios demonstrate responsible credit management and can positively influence your creditworthiness.
By monitoring your credit utilisation effectively, you show creditors that you're using credit responsibly and not relying excessively on borrowed funds. This can help you maintain good credit rating over time.
2. Don't Cancel Old Credit Cards
Maintaining a healthy credit score hinges on various factors, and one effective habit is refraining from cancelling old credit cards.
The length of your credit history significantly impacts your score, and older accounts demonstrate your reliability over time. When you cancel old cards, you truncate this history, potentially lowering your score.
Additionally, your credit utilisation ratio plays a crucial role – the total credit you use versus your available credit. Retaining old cards increases your available credit, keeping the ratio in check.
However, it's vital to monitor these cards for any fees and ensure they're not dormant. By preserving your long-standing credit relationships, you exhibit stability to credit agencies and bolster your creditworthiness.
3. Check Your Eligibility for Every New Loan That You Borrow
When checking your eligibility for every new loan you consider can be a helpful financial practice.
It's important to clarify that this action itself might not directly impact your credit score.
However, being cautious about borrowing and managing credit responsibly is a positive practice that can help maintain a good credit score. The reasons are:
- Soft Inquiries: When you check your eligibility for a loan, the lender typically performs a soft inquiry (also known as a soft pull). Soft inquiries do not affect your credit score. They're only visible to you and don't show up on your credit report that's seen by other lenders. Therefore, checking your eligibility won't harm your credit score.
- Smart Borrowing: Taking the time to assess your eligibility before applying for a loan demonstrates responsible financial behaviour. Applying for multiple loans in a short period (known as a hard inquiry or hard pull) can negatively impact your credit score. Every hard inquiry can lower your score by a few points. By being selective and checking your eligibility beforehand, you can avoid unnecessary hard inquiries.
- Loan Approval Chances: Checking your eligibility lets you estimate your loan approval odds before applying. This can help you avoid applying for loans you won't get, which can hurt your credit.
- Overall Credit Management: Responsible borrowing, making timely payments, and managing your credit accounts will all contribute to a good credit history, which is a fundamental factor in maintaining a good credit score over time.
Those who are employed by a private limited company or a public sector organisation (including national, state, and local government entities) and who satisfy the following conditions are eligible to apply for a Personal Loan, regardless of whether or not they need one.
- Age must be between 21 and 60
- People have at least 2 years of experience, including 1 year with their present job
- Applicants must earn ₹25,000 per month in net
These qualifying requirements assist lenders in verifying that personal loan applicants have a steady job history, regular income, and the right age.
4. Regularly Check Your Credit Report
Regularly monitoring your credit report is essential for maintaining a healthy credit score. Obtain your free credit reports from major bureaus yearly (CRIF High Mark, Equifax, Experian, CIBIL™) and meticulously review them for errors.
These inaccuracies could include mistaken account information or unauthorised transactions that might negatively impact your score. You ensure that your credit report reflects accurate information by identifying and addressing such discrepancies.
Timely action can prevent potential credit score damage due to false information. Remember that a clean and precise credit report positively affects lenders' decisions when considering your creditworthiness.
Monitoring your report also aids in detecting signs of identity theft or fraudulent activities early, allowing you to take immediate steps to mitigate these risks. Regular credit report checks serve as a proactive approach to safeguarding your financial standing and maintaining a strong credit score.
5. Take One Loan at a Time
Maintaining a good credit score is aided by the habit of handling one loan at a time. Focusing on a single loan enables better payment management and reduces the risk of missed deadlines, promoting a positive credit history.
This approach demonstrates responsible borrowing behaviour, contributing to a stronger credit score over time.
On the other hand, juggling multiple loans simultaneously can lead to several disadvantages.
- It can become challenging to keep track of multiple payment dates, increasing the likelihood of missed or delayed payments. This can negatively impact your credit score, as payment history is a crucial factor.
- Moreover, multiple loans might strain your debt-to-income ratio, making it harder to qualify for new credit.
- Taking on multiple loans can also lead to higher overall interest payments and potential financial stress if unforeseen circumstances arise.
Therefore, adopting the practice of managing one loan at a time is generally a more prudent approach to maintaining a good credit score.
Conclusion
Adopting these essential habits can undoubtedly pave the way for maintaining a strong and healthy credit score.
You are proactively taking control of your financial well-being by staying vigilant about timely payments, keeping credit utilisation in check, monitoring your credit report regularly, and being mindful of new credit applications.
Remember, keep your credit score high. It opens doors to favourable lending terms, lower interest rates, and greater financial flexibility. Add these habits to your daily routine, and watch your credit score flourish over time.
Your financial future is in your hands - take the first step towards a brighter tomorrow by cultivating these empowering habits today. Ready to turn that great credit score into more financial opportunities? With Shriram Finance, we can help you leverage that high score for better loan terms, lower interest rates, and more.
Find out how you can get the most out of your creditworthiness with India's leading NBFC today! Ready to make those credit habits count? With Shriram Finance, your impressive score can lead to even more financial benefits. Explore tailored credit solutions from India's leading NBFC today!
Key Highlights
- Timely Payments: Consistently paying bills on time is crucial for a healthy credit score.
- Low Credit Utilization: Keeping credit card balances low relative to credit limits demonstrates responsible use.
- Diverse Credit Mix: Maintaining a mix of credit types, like loans and credit cards, can positively impact your score.
- Avoiding New Debt: Limit opening new credit accounts unnecessarily to prevent credit inquiries.
- Regular Monitoring: Regularly review your credit report for errors and discrepancies to address them promptly.
FAQs
1. How do you keep your credit score high?
Maintain on-time payments, low credit utilisation, diverse credit types, and avoid excessive credit applications to keep a high credit score.
2. Is 700 a good credit score?
Yes, a 700 credit score is generally considered preferred, indicating decent creditworthiness to lenders.
3. Can I build my credit in 3 months?
Building credit in 3 months is limited; focus on paying bills promptly and using credit responsibly to make gradual improvements.
4. Can I pay someone to fix my credit?
Be cautious of credit repair companies; improving credit requires responsible financial behaviour, which only you can control.
5. How to get 40 points on my credit score?
Boost your credit score by reducing credit utilisation, addressing errors, and consistent payments; achieving 40 points quickly depends on individual circumstances.
6. What is a fair credit score?
A fair credit score usually ranges around 580-669, suggesting some credit risk but still qualifying for loans with higher interest rates.
