Steps To Maintain A Healthy Credit Score

There are some people who easily qualify for loans and get the best interest rates while a few others struggle for the same. One of the main factors in this scenario is a highly influential number: credit score. This number summarises the creditworthiness of a person to lenders. From securing a dream vehicle loan to getting the best deals on insurance, a healthy credit score unlocks a world of financial opportunities. However, maintaining a good credit score can seem like a mystery to some. Let’s understand what this score is and some steps that can be taken to maintain a healthy credit score.

What Is A Credit Score?`

It’s a prediction of what the credit behaviour will be like of any person taking a loan. This score answers one of the most important questions for a lending institution – how likely is someone to repay the loan? Lending institutions use this score to determine whether they should sanction the loan and at what interest rate along with the credit limit attached to it. CRIF High Mark, Equifax, Experian, and TransUnion CIBIL are four agencies in India that determine credit scores based on credit history and borrowing patterns of individuals. The number ranges from 300 to 900, and based on this, lending institutions determine the creditworthiness of the applicant. A higher score here indicates that a certain individual has good financial health. Let’s look at some more benefits of maintaining a good credit score.

Benefits Of Maintaining A Healthy Credit Score

Having good health is generally considered a good sign and it’s no different for credit scores. A healthy credit score assures the institution that the applicant in front of them would more likely pay their dues on time without fail. Following are some of the main advantages of having a good credit score:

1. Lower interest rates: With a good credit score, there’s a good chance of getting a better deal on interest rates for a loan. This means a lesser interest amount needs to be paid to the lender as compared to someone with a bad credit score. As a result, it helps to get the loan amount to be returned as quickly as possible.
2. Faster loan approval: Someone with a good credit score has a decent chance of getting their loan application approved sooner rather than later.
3. Power of negotiation: With a good credit score, the applicant gets the power to negotiate the terms they want on a loan.
4. Chances of getting a bigger amount approved: For someone who is looking to increase their final loan amount, a good credit score does come in handy. Institutions are more likely to approve bigger amounts for applicants with higher credit scores.
5. Auto insurance rates: A good credit score helps in getting good insurance deals as well. Insurance agencies do consider credit score as a parameter to determine the eligibility of an applicant.

What Are The Factors Impacting Credit Scores?

Companies use a mathematical formula called a scoring model to create a credit score that’s based on an individual’s credit report. Multiple factors are taken into account to determine their creditworthiness. They are as follows:

1. Repayment history: Timely payment every month helps the applicant’s case meanwhile a payment that’s been late by 30 days could harm the score quite significantly.
2. Credit utilisation ratio: This ratio indicates how much one spends in a month on average and the approved credit card limit. If the expenses go beyond 30% of the approved limit, the impact on credit score is bad.
3. Credit age: An individual’s history with credit also plays a role in determining the credit score they’ll get. The older that history is, the better it is for the applicant.
4. Credit mix: A mixed bag of loans leads to having a positive credit score. This bag should ideally include a combination of secured and unsecured loans.
5. Credit inquiries: The lower this number is, the better the credit score will be. Unnecessary inquiries lead to getting a bad credit score.

How To Maintain A Healthy Credit Score?

Maintaining a healthy credit score is not a tiring task and here are a few ways to do it right: 

1. Be punctual with payments

Punctuality often helps one to become a better version of themselves. Similarly being punctual with payments is necessary to keep the credit score on the higher side. The creditworthiness of an individual is based a lot on the number of EMIs that are paid on time. These include EMIs on home loans, car loans, or even personal loans. One must be prepared with sufficient funds before the date is due. In some cases, the lender might give an extension by a day or two but an extended delay in payment might be reported.

2. Paying credit card bills

One of the most ignored factors in maintaining a good credit score is the payment of credit card bills. Paying credit card bills on time does help in getting a better credit score. Setting up a monthly reminder for such payments is ideal. 

3. Keep the risk factors in check

Lenders typically evaluate someone’s creditworthiness based on certain factors. These factors should be the main focus to maintain the credit score in the long run. These factors include history of payment, money owed, duration of credit, and different types of credit in use.

4. Maintain a low credit utilisation ratio

This means that one shouldn’t exceed the available credit limit by more than 30%. It ensures that the credit score remains on the higher side of things. 

5. Keep an eye on the credit report

Always keep checking the credit report regularly to spot any errors or faults in it. All the errors noticed should be immediately reported to the credit bureau. 

Summing Up

Maintaining a credit score should be one of the top priorities of every person in today’s day and age. Many applications are made daily and a number of them get rejected purely because of bad credit scores. Having a good score is like having a superpower that would help in the long run to achieve different financial goals. And this is one superpower that no one would want to miss out on.

FAQs

Is 750 A Good CIBIL Score?

Anything above 700 is considered a good CIBIL score. Scores that are above 750 are considered to be excellent. Individuals with such scores can get all sorts of benefits and approvals for loans.

What Are 4 Ways To Improve Your Credit Score?

A few ways to improve the credit score are keeping track and regularly reviewing the credit reports, repaying the dues on time, keeping the credit utilisation rate low, and keeping the risk factors in check.

What Are Four Benefits Of Having Good Credit?

There are many benefits of having a good credit score. Some of them are as follows: 

1. Borrow money at a better interest rate
2. Qualify for the best credit card deals
3. Improve your chances of renting a home
4. Receive better car and home insurance rates