Harsh finally narrowed down on the house of his dreams and in order to secure the future of his family, decided to avail of a housing loan in order to make that dream come true. Unfortunately, his loan application was rejected on account of a low credit score, and his plans were therefore thwarted. What could Harsh have done differently? Would a better score have made all the difference? Read on to know more…
Well, it isn’t always that a low credit score means your loan application will be rejected outright, but there is always the possibility. Further, even if a financer was to extend the money, it would not be at the most competitive terms – you would likely wind up paying a higher rate of interest in comparison to what someone with a better or ‘good’ score would.
What then can you do differently to have a good score? Well, do keep in mind that to increase credit score you’d need to work at it, with a fair amount of financial discipline and diligence. While it is not impossible to enhance credit score, it can take some time, so work patiently and consistently.
What constitutes a ‘good’ score?
Typically, a score is rated between 300 and 900, with most lenders considering 750 and above to be a good score. It essentially helps a lender determine an individual’s creditworthiness, or the likelihood of default in case a loan is extended.
What can you do to increase your credit score?
Now that we have established what a good score looks like, let us take a look at the things you can do to not only maintain but also over a period of time enhance credit score.
Make timely payments – Have a credit card bill or loan EMI due? Make sure you pay the outstanding on or before the due date, to ensure that your credit score is not impacted negatively. Every time you delay a payment – or worse, default – your score takes a hit.
Very often, people tend to go overdue on payment due to sheer forgetfulness. If you are unable to remember the payment date, consider setting up reminders or alerts on your mobile phone or tab. You could also avail of options such as ECS mandates or direct debits from your bank account, for sheer convenience.
Retain old ‘good’ debt – Have a credit card that you’ve been using for a few years now? If the answer is yes, do not close the card account. Having credit on your records for a reasonable amount of time indicates your repayment pattern to a lender. Of course, to make this work for you, you need to make sure that your repayment record is impeccable, and this is where timely payments come in. A clean record shows that you are likely to handle debt responsibly and hence may not pose to be a risk to the lender.
Utilise credit limit well – When you opt for a credit card, there is a pre-determined credit limit assigned to you. Generally, the rule of thumb is to ensure that you do not utilise more than 30% of the limit in a billing cycle, as the closer you are to maxing out the card, it indicates credit hungry behaviour. It is likely therefore that someone who evidently is dependent on cards may not be financially solvent.
Don’t apply for unnecessary accounts – While an offer on a new card is tempting and often hard to ignore, try to stay away, unless you absolutely need that card. The reason is, each time you apply for a new line of credit, your credit report is ‘hit’ with an enquiry, which brings down your score.
Further, it can get tempting to use multiple cards and eventually fall into a debt trap, if the outstanding dues are not paid off. To avoid spending more than you can afford by revolving credit, stay away from applying for several credit cards.
Having no line of credit – As bizarre as it may sound, having no open line of credit can also go against you, because the lender has no way to ascertain your credit behaviour. So when you apply for a loan, for example, a lender is likely to hesitate in sanctioning the amount as they are unsure whether you will make timely payments, or are likely to default.
Budgeting is the key – Don’t overextend yourself: be realistic, prepare a budget and more importantly, stick to it. Estimate what your monthly outgoings are and factor in your incoming money (by way of salary, business income etc.) and cut your cloth accordingly. Do not fall into a vicious debt cycle by spending more than you can afford to repay.
Credit counselling – If you are aware that your credit score needs some work, get in touch with a credit health management company such as Credit Sudhaar. By working with a trained credit counsellor you can build your score and maintain it well over a period of time.
There is unfortunately no quick-fix method of boosting your score, but to join those individuals who maintain an exclusive 800+ score, discipline and diligence is the key. Remember, there are many benefits to staying credit healthy, so start now!