10 Simple Ways To Improve Your Credit Score

A bad credit score can make your life difficult.

It’ll make you pay more for your loans, prevent you from getting the best reward credit cards, and even delay your retirement.

So if you are facing all these challenges to improve your credit score, you have come to the right place. I have listed 10 ways to improve your credit score.

But before that let’s discuss what is considered a good or bad credit score.

What Is Considered a Good Credit Score?

Each credit rating agency has its own credit score calculation framework and hence a good credit score varies from agency to agency.

CIBIL score ranges between 300 and 900, and anything above 650 is considered a good credit score with 750+ being excellent.

The higher the credit score, the easier your life will get.

Now let’s discuss 10 ways to improve your credit score:

How To Improve Your Credit Score?

Clear Payment Dues On Time

A simple tip and yet the majority of people fail to do so. Delayed repayments negatively impact the credit score. Settling your dues in full every time will save you from late fees and interest.

If you struggle with on-time payments, consider using automatic payments for your accounts or setting up alerts so you are reminded to pay.

To see a significant difference in your score, continue your timely payments for at least six months.

Consolidate Your Debt

Your credit score takes a hit if you have more active debts. You can dissolve this in two ways

Meaning, you can take a new loan to pay off all your active loans.

Apply for a debt consolidation loan from your bank or credit union. You take this loan to pay off your existing debts, and once approved, and then you slowly settle this new loan amount over time.
You can transfer your credit card balances from one card to another card which offers better benefits or lower interest rates. However, there is a balance transfer fee that typically ranges between 3% to 5% of your amount.

But first, find out whether a credit card balance transfer is the right step for you or not.

Utilize Less Than 30% of Credit

Maxing out your credit card limit every month is considered high risk by lenders.

So, it’s important you keep within your spending limit as it will enhance your credit score.

Apart from reducing your spending, you can also you can balance your utilization rate by increasing your credit limit.

This will help you make repayments at ease without any financial pressure.

Do Not Close Old Credit Card Accounts

Avoid closing any old credit card accounts, even if you no longer use them. You can choose to not use them for any transactions but do not cancel them. Keeping the accounts open will help build a stronger and longer credit history.

Limit Frequent Credit Inquiries

There are two types of inquiries when you apply for new credit; soft and hard. A hard inquiry is when a lender checks your credit score when you apply for a loan/credit card whereas a soft inquiry is when you check your credit score for a pre-approved loan offer or before applying for a loan.

When you apply often for a new loan or a credit card in a short span of time, it leads to hard inquiry and that strikes your credit score negatively.

Reducing the number of new credit inquiries helps increase the credit score.

Do Not Avail Loans You Cannot Settle

Taking multiple loans at a given point in time crashes the credit score. It is advisable to pay off the existing loans first and then plan about availing of other loans which act in accordance with your finances.

Create A Diverse Credit Portfolio

To be on the safer side, maintain a healthy mixture of credit lines that are both secure and unsecured. Secured credit is a credit that needs collateral for approval whereas unsecured credit is something that can be taken instantly.

The variety in your credit lines really helps to spike your credit score.

Borrow Enough Credit To Generate Credit Report

If you have a credit card but do not use it frequently, you will not have a credit history and in turn no credit score. Not borrowing enough credit also has an adverse effect on your credit score and that only makes it difficult for you to get any more loans/credit cards when you need them.

Opt For Loans With Longer Tenure

Selecting a long-term loan makes it easier for you to make repayments as the EMI amounts shrink and that in turn lowers the chances of defaulting.

Not just this, long-term loans also help avail higher loan credits in the future.

Check Your Credit Report Once A Year

Do not confuse a credit report with a credit score. A credit report is a statement that has a detailed summary of your credit activity, open loans, repayment status, etc, and is prepared by a credit bureau. You can fetch this report once a year by going to the credit bureaus’ official websites.

This report helps you understand the mistakes you have made in the past and eventually prevents you from repeating them. Also, if there are any discrepancies in the report, you can raise them to the credit agencies and get them rectified.

Conclusion

Improving your credit score takes effort and patience. There is no one-size-fits-all solution that will improve it overnight. It depends on what’s hurting your credit and the steps you’re taking to rebuild it.

While it takes a few months to see a noticeable change in your credit score, you can start working towards a better score at the very moment.