6 Ways to Improve Your Credit Score

If you want to give your credit score a boost, then you must understand that it won’t happen overnight. Credit score improvement is a long process. You have to be patient and just work for it. However, if you are careful enough and take the right steps, then eventually you can easily attain a promising score.

The following are 6 of the best ways to improve CIBIL score:

  1. Watching Credit Card Usage

Credit cards can help build a good credit score. However, they can also ruin it. It all depends on how you use them.

Credit utilization is one of the biggest factors that affect your CIBIL score. Using credit cards excessively leads to a high credit utilization which is harmful to your score. However, there are two ways you can tackle this problem:

  • You can limit your credit card utilization by using cash or other payment methods save for credit cards.
  • You can divide your expenses on multiple credit cards. So, if you have to buy an air conditioner worth Rs. 30,000 and you have two credit cards, then you can charge Rs. 15,000 on each.
  1. Paying Bills on Time

Plain-vanilla timely payments can do wonders for your credit score. Not only you can minimize your debt this way, you can also make a strong case for yourself for potential lenders. Banks and financial institutions simply love those borrowers who have a long history of timely payments because it’s easy to trust them with their money.

  1. Fixing Credit Report Discrepancies

How often do you check your credit report every year? If your answer to this is “once” or “never”, then maybe that’s the reason why you are unable to improve score.

There are several benefits of monitoring your CIBIL report, one of which is the identification of mistakes or errors.

It’s easy to think that a mistake or two in your CIBIL report can’t do much harm. However, it’s completely false. Mistakes in credit reports can have grave consequences that include compelling you to get a loan for low CIBIL score.

Taking an example, if your name or address is printed wrong or if there are false mentions of late payments in your CIBIL report, then your score could easily fall by hundred points or so.

Checking your CIBIL report frequently can help you find and rectify mistakes that are hurting your score. Plus, if you identify anomalies or unrecognized transactions, loan inquiries, etc. then you can also prevent a potential case of identity fraud.

  1. Adding Something New to The Mix

A singular credit history can put limitations on your score. So, if credit report contains details of only credit card usage, or a personal loan account, etc. then you can increase credit score only so much.

Even if you are doing all the right things for your score, you can’t surpass a certain limit unless you diversify your credit usage. This is because the more diverse your credit history is, the better it’s for your score. So, if your score is solely based on your credit card usage, then you can make an improvement by availing a small personal loan, auto loan, etc.

  1. Saying “No” to Minimum Payments

Minimum credit card payments and credit score improvement don’t go hand in hand. You can only choose either of the two.

Banks highlight these “minimum payments” to lure more customers into applying for their credit cards. However, minimum payments lead to debt accumulation and lower CIBIL score. So, if you really want to enhance your score then you should always pay your credit card bills in full.

  1. Debt Consolidation

Debt consolidation is not a direct but rather an indirect way to improve credit score. In this, you combine all your loans into one. So, instead of paying several EMIs every month, you need to pay just one. The result is better money management and timely payments.

Many finance experts claim that debt consolidation can help improve CIBIL score really fast, especially if pay the EMIs on time.

If you don’t want a future in which you have to look for a loan for low CIBIL score, then it’s best you start caring for your credit report as soon as possible. In fact, today is as good as any.

What’s the difference between Soft and Hard Inquiries?

Anytime someone submits a request to the credit reporting agencies to have a look at your credit report, an inquiry is generated. The information regarding the entity making the inquiry, date and reason for the inquiry are captured and recorded on your credit report. But not all inquiries are the same. The key is to understand the difference between two different types of inquiries and how they affect the CIBIL score.

Credit checks are often categorized as hard inquiries and soft inquiries. Let’s see what they mean.

Hard inquiries

Whenever you apply for a credit card, home loan, or any other kind of mortgage you give permission to the prospective lender to pull your credit score and credit report. The information in your report helps them decide whether you are worthy of giving credit or not. A high score gives them assurance that you are a worthy borrower while a low CIBIL score will usually trigger a negative response. So basically whenever you are seeking credit, the lender pulls your credit information and this is considered as a hard inquiry. Bureaus consider that each hard inquiry associated with a new loan, changes the risk factor associated with the borrower. Hence hard inquiries have a negative effect on your score. However they account for only 10% of the overall credit score and therefore bring a dip of only 5-8 points. Factors such as payment history and credit utilization have a greater weightage.

Some situations which will trigger a hard inquiry are

  1. Application for a home loan, student loan, auto loan, personal loan or business loan
  2. Application for a credit card
  3. Mortgage applications
  4. Requesting the credit card company for a raise in credit limit
  5. Responding to a pre-approved credit card offer received.

Soft inquiries

Some situations which generate a soft inquiry are

  1. Initial checks by credit card companies and other loan providers who offer you pre-approved loans.
  2. Background checks conducted by potential employers to ensure that the candidate is a responsible individual with good credit.

 

  1. Periodic checks by credit card issuers to analyse your lending behaviour.

Soft inquiries do show up on your credit report but they are not factored in the credit scoring models. So if you have a low CIBIL score, you need not worry about soft inquiries as they do not affect your credit score at all. Most importantly when you request your own report and score from any of the three credit bureaus, it is counted as a soft inquiry. So doing a self-credit check doesn’t hurt your score at all.

How can one minimize the no. of hard checks?

If you have a very good credit score you may not worry too much about hard inquiries as a few points will not harm you much. But in case you have a low CIBIL score and you wish to get credit in near future then you need to be careful that you are not hit with too many hard inquiries. Multiple inquiries increase your financial risk. Hence it is best to minimize these hard pulls to avoid getting a low CIBIL score. Here’s how.

  1. Before applying for loans check your credit score. Apply only where you are likely to qualify. This way you can minimize the no. of hard inquiries.

 

  1. If you are looking out for the best loan deal possible then make sure you make all your applications within a 30 day period. When credit bureaus notice that you are applying for same size loan they pick up this fact and give a 30-45 day window period for rate shopping. They combine multiple inquiries within this period into just one.

 

  1. In case your landlord wants to check your report, ask if you can submit previous rent receipts, income proofs and bank statements to prove your financial reliability.

 

  1. Time your important loans like home loans so that there is no hard inquiry six month prior to filing your application. This way even minor factors will not affect your ability to get best possible interest rate on home loans.

If you have a low CIBIL score and you are looking at ways to improve it then you must first focus on factors like payment history, credit utilization ratio and the mix of credit. These have a greater impact on your score. Potential lenders give more weightage to these factors than just the number of hard inquiries. Do not get too bogged down by the number of credit inquiries. If you have a solid credit history then temporary setback to the score caused by hard inquiries will not do much harm to your credit health.

 

Want to increase your Home loan eligibility?

Planning to buy a house? After accumulating all your savings still find it difficult to buy your dream home? Try considering home loans. They give you a helping hand buying your dream space. So how will you prepare yourself for a home loan?

Here are a few points to consider when considering a home loan;

Clear existing loans and credits

If you are applying for a home loan you should first try clearing all your outstanding debts and increase your savings on paper. This will give you a helping hand in terms of increasing your home loan amount and get the maximum out of it.

For Example: if you have a car loan running on your name chances are, that your EMI will be around five to ten thousand rupees. When it comes to a this loan the EMI structure ranges from 900 to 1200 rupees per lakh for different banks like ICICI Home loans, or HDFC home loans or DFHL Home loans. If you’re clearing your car loan while applying for a home loan, you will be automatically appreciating your loan amount to at least five to ten lakhs.

Reduce Credit Utilization

Try not to spend money while considering taking this loan. It can be one of the critical points when it comes to credit worthiness. Put your savings in place, if you find difficult to save money try investing in fix deposits and other financial products. This will give the bank or the financial company an understanding on your financial status and your spending patterns. The more you save the more you have chance to gain trust of the bank.

Avoid Job Change

When you apply for a bank loan the bank not only checks your financial status but also checks your employment patterns. You will be asked about your employment status and the total years of experience. You need to be in a particular company at least for a couple of years when considering home loan .If you have switched multiple jobs in short span of time it’s likely to get your application rejected.

Consider all incomes

If you have multiple incomes which you can show in your bank statement like freelancing jobs, existing property rents etc. try showing all your incomes and gains so that you can boost up your chances of getting a loan and also increase your eligibility for a maximum amount. It can help you be one step closer to your dream house or else you will have to shell out some more money as down payment.

Pool in your spouse
I
f you do not have multiple incomes coming in, you can always take help of your spouse or any earning family member. Many banks consider your spouse’s income as well when sanctioning the loan. There is a fixed pattern behind this, either it should be husband and wife as co-borrowers or it can be father and son. Sibling’s as co-borrowers are not allowed in many cases.

Increase tenure

As we all know these loans are a long commitment, considering government subsidies and offers of low interest rates is always suggested to opt for a long tenure. A long tenure helps you reduce monthly EMIs and live an easy life. If you opt for less tenure the EMI range will increase and that means you will have to work harder for meeting your EMI amounts.

Have a good cibil score

A good cibil score is built when you pay all your dues on time and are financially sound. When applying for this loan if your cibil score is bad then the bank will deny your loan. There are many non-banking financial companies who provide home loans for low cibil score people but the interest rate will be high compared to market standards. Maintaining a good cibil score takes a lot of dedication and cautious moves, so take the steps wisely and maintain the same.

Have good terms with the bank

It is always suggested to do a thorough research on the banks you have shortlisted for a home loan. Always consider that you owe to bank first where you get your salary or keep the savings in. If you are in good terms with your bank, the process gets easy and the home loan sanction is done in no time at all. Choose your banking relationship manager wisely and keep good relations with them.

Taking a home is a huge step in one’s life and loans are one of the ways to achieve what you dream for. You will have an amazing time through the process of getting the loan sanctioned if you adhere simple steps today!