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How to Improve Your Credit Health?

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by: No more debt !
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Date: Sun, 18 Jan 2015 Time: 11:24 PM

How to Improve Your Credit Health?

Your credit score is the determining factor that affects whether you can avail of a loan.

Bureaus compute your score based on data shared by lenders. Your Credit score is derived from your Credit Report which is built based on your Credit history. Your credit/borrowing history is shared by lenders with bureaus.

A Credit Score is an indicator of an individual's credit worthiness. It impacts the individual's ability to borrow and take fresh credit from lenders.

A Credit Score is a score or rating given to individuals as an indicator of the individual's credit behavior. This is pretty similar to the marks we get for Maths, English, Science etc., from schools. However unlike school marks which tend to have a 0 to 100 range, the range for credit scores varies from bureau to bureau. The CIBIL score range is 300 to 900. The higher your score the better your prospects to get a loan. A Credit score of 750+ is considered as loan worthy by most lenders.

To ensure that you stay credit fit, here are a few tips and pointers:

One time Credit health review:

  1. Obtain a copy of your Credit report

    Check if your Credit Report has errors? Often these errors are a result of in accurate reporting or identity theft.  Obtain a copy of your Credit Report and make sure that your credit history is correct and up to date.

  2. How much credit or debt do you have:

    Too much credit or borrowing is not good and so is too little.  Having active borrowings is important to have a credit history and can make up to 15% of your Credit Health Score. Your credit history gives an indication to the credit provider of your ability to service long-term debts. 

  3. Close unused lines of credit

    The fewer lines of credit you have, the less risky you appear to creditors. Close all unused credit cards and accounts. Do check whether your credit report with the credit bureaus shows that you have closed the account

  4. Check your Credit utilization

    The % of what you owe to what has been sanctioned is your Credit utilization. Lenders like this to be as low as possible. If your utilization is very high, logically, pay off  loans with the highest interest ratio first, and then kill all debt that is reaching the maximum limit. 

Ongoing management:

  1. Pay On Time

    Paying on time is the most vital ingredient of your credit score. Your payment history on your credit health report amounts to almost 35% of your total score. Delaying payment by even a day is recorded and negatively affects your score. Keep this in mind and do ensure that you have enough funds for meeting your borrowing

  2. Keep credit enquiries few and far between

    There's no need to rack up your list of enquiries, so it's in your best interest and that of your Credit Score to only make an enquiry for credit when it is absolutely necessary. Every enquiry you make is recorded on your credit history. If there are too many accumulated together, along with bad debt, then it is a sure indicator of financial trouble or mismanagement of accounts

  3. Manage your credit card payments and pay them off – atleast the minimum due

    Credit cards provide instant gratification, but can cause havoc when not managed properly.  How effectively you manage  your credit card is an indicator of how you will manage any future credit. Hence, make regular payments on it and keep the balances as low as possible. Lenders would then see you as as someone who manages their debt responsibly. 

About the Author

R Sudarshan is COO & CO founder at CreditMantri is a provider of comprehensive Credit Analysis and Credit Improvement programmes. At CreditMantri, we help you to better understand the reasons your loan / credit card application was rejected or why your Credit Rating / Score is low.

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