Boost Your Credit Score

A credit score is a number between 300-900 that depicts a consumer’s creditworthiness. Lenders use credit score to evaluate the probability that an individual will repay loans on time. Easy credit is always sought for but that depends upon your credit score. Covid-19 pandemic has added to the difficulties that one was already facing while getting a loan as many of us have faced financial crisis, job loss etc.

Know about your credit score and how will you boost it?

A good credit score is a decisive factor while finalising the interest rate and other terms to get a loan sanctioned in an individual’s favour.

If there is a credit history, meaning the borrower had taken a loan before or had a credit card, then a credit score is computed based on that and it is usually a digit between 300-900. Depending upon this score the lender will be able to assess the borrower’s repayment history, loan tenure of previous borrowings, and the purpose of the debt.

There are credit bureaus which compute the credit score. They are CIBIL TransUnion, Experian, Equifax or CRIF High Mark. These bureaus use their independent algorithm and calculate credit scores.

Factors based on which credit score is computed:

Repayment history: A month to month record is kept by the credit bureau of payments done by you of your bills as well as of monthly loan instalments. Last year’s data is considered to compute the score. Failure to meet the obligations even once could affect the score and bring it down, be it a credit card bill or an EMI.

Credit Utilisation Ratio: This shows the credit card limit being used in a month. By using the credit card more the CUR will be high. Ideal CUR should be kept under 30 percent. If you use your credit card above these limits, that will bring down your credit score as it shows one’s greed to spend more using credit. Make sure credit card bills are paid fully and timely.

Age of the credit: The older is the loan or credit card, the more is the score. As it guarantees that you have taken your responsibilities seriously and you are able to meet them on a regular basis. This factor has a moderate effect on your credit score.

Mixture of credit accounts: The percentage of secured and unsecured loans does not affect the credit score. But composition of loan mixture comprising of both secured and unsecured loans gets a higher credit score.

Credit inquiries: Each time a borrower approaches a lender, the lender asks the credit bureau regarding the credit rating of the borrower. Such inquiries initiated by the lender are termed as hard inquiries. They result into lowering a borrower’s credit scores. To avoid this, one should do an analysis of the available lending schemes to match one’s purpose online, rather than approaching different lenders.  The borrower shall also have to submit his/her income, credit score etc. to get info about matching lending offers. Market places will also ask for credit reports. They are called soft inquiries by the credit bureaus. But they do not result into lowering the credit score. So, it is better to do an online survey instead of directly approaching a lender. 

900 is the highest score possible but getting a score of 750 or above is ideal to get a nod from a financial institution sanctioning your loan proposal. Keep in mind all the above factors to boost your score and avoid the likelihood to get it down by all possible means.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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