Maintaining a good credit score is a crucial part of our financial health. It plays an important role in getting a loan easily. So, if you have a higher credit score, then you can easily avail of the loans with a lower interest rate. But a poor credit score can also lead to the rejection of your loan application. Hence, you must keep having a higher credit score.
Are you looking for helpful tips to maintain your credit score? Or is your credit score is low and want to increase it? Then, we are going to explain it over here. Read below to know the beneficial tips to maintain your credit score without any hassle.
What Is An Ideal Credit Score?
Firstly, you have to understand how much credit score is essential for you. In this way, you will have an idea about how you can maintain your credit score properly. However, the requirement of a credit score can differ from one financial institution to another.
A credit score is basically of 3-digit number which reflects that the creditworthiness of a person. The range of a credit card is from 300 to 900. It is best if your credit score is near to 900 points. But, if the credit score is lower than 750 that, it can be difficult to avail of any loan. Hence, it is crucial that you manage your credit score.
Tips You Can Follow For Maintaining Your Credit
You can follow the below tips that can help you in maintaining a good credit score.
Check Your Credit Report Regularly
Firstly, to maintain a good credit score, you have to check your credit reports regularly. You can take help from various credit monitoring services to see the change in your credit score. Sometimes it happens that the lender may forget to inform the CIBIL that about your loan closure.
As a result, it can be an error and your credit score will appear low. Hence, to avoid this problem, it is best to check your credit report regularly. So, the chances for inaccuracies will be low and your credit score will eventually jump higher.
Maintain the Ratio of Credit Utilization
Secondly, you have to know the ratio for credit utilization. It is basically a calculation to measure the usage of your credit against your set credit limit. So, you need to make sure that this ratio should be 30% for a good credit score.
To maintain that, you should know how much money you are spending with your credit card. Hence, when you reach the monthly spending limit of your credit card, then stop using it further. In this way, you can be able to manage your credit score easily.
Avoid Frequent Enquiry
Frequent enquiries for your credit score can be problematic. There are basically two types of enquiries- Soft and Hard. Having a soft inquiry means you can check your own credit and also give permission to your employer to check the credit. However, soft enquiries don’t have a major effect on your credit score.
On the other hand, hard enquiry can have a major impact on the credit score. It is required to receive information to apply for a new credit card or loan. But, doing a hard enquiry a few times will not affect much. But, several hard inquiries in a short period can have a negative impact.
Make Your Payments on Time
The best and easy way to maintain a credit score is by making payments on time. Whether it is an Equated Monthly Instalment (EMI) or the bill of credit card, bill payments should be on time. Thus, any type of late payment of your credits can lower down your credit score drastically.
However, it may happen that you fail to pay your debts due to some causes. So, you can switch to auto-payment methods for your monthly payments. Along with that, you can put a reminder for paying the loans every month and make a task sheet. Therefore, if you are able to pay all your bills on time every month, then you can maintain your credit score smoothly.
Don’t Close Your Previous Credit Cards
Most people don’t know that closing credit cards that are old can lower down your credit score. So, you must know why it happens. It is because, after you close the credit card, the issuer will stop sending the update to the credit bureau. As a result, the credit bureau will remove the calculation from your credit history in the future.
This will cause the credit score to push down significantly. Thus, it is better that you only close down your previous credit cards only when it is necessary. Also, you must evaluate that if you will be able to lift your credit score afterward.
Debt Consolidation Is Also Helpful
If you have availed of various loans then, it will be great if you take a single loan all of them at once. In this way, you will only have to pay for only one loan. Along with that, it will be easier to manage your monthly repayment easily.
Furthermore, your credit score will boost up with this amazing tip. You can also take up a loan in the future with a lower interest rate. Thus, you will automatically pay your loans in a faster way and improve the ratio of credit utilization. As a result, you will be able to maintain your credit score easily.
You Must Have A Credit History
As we all know that a credit score helps us in getting loans with a low interest rate. But, it will be difficult if you don’t have a credit history. Even if you are able to take up the loan, the interest rate will be higher. So, if you avail even one line of credit such as a credit card, then it will be the right choice.
You can increase your credit score above 700 and reach up to 900 which is excellent. So, if you haven’t availed of any credit product before, then you must get it now. Hence, this step will be helpful for you in the future.
Myths About Credit Score That You Must Avoid
Maintaining a credit score is a simple yet crucial task that you mustn’t forget. However, you may have come across various information about credit scores. But, it can be difficult to understand which of this information is true or myth. The below myths about credit scores will also help you to maintain a good credit score.
Doing Cash Payments Helps in Increase Score
If you think that, making all your payments through cash will increase your score, then it’s wrong. You must know that credit abuse is bad instead of credit use. You must have some responsible history related to your credit. Thus, a person with a responsible credit history will have a higher score compared to the one with no credit history.
Amount in Your Bank Account Affects Credit Score
Secondly, how much amount you have in the bank has no effect on your credit score. But, there are other things that are crucial. Your credit score will decrease if there is a check bounce and you don’t pay the money. However, if your outstanding balance reaches any government agency, then it can be a problem.
One Single Score Reflects Credit Worthiness
Thirdly, no, there is no single method to calculate your credit score. You need to understand that there are various models for calculating a credit score. Several lenders and banks use the generic score to know the basic risks of the credit. However, custom scores of credit are also used for knowing the risk for lending a particular loan to the borrower.
Delinquent Loan Is Removed From Credit History After Payment
Additionally, you may also have come across this misinformation. But, you must know about this. Basically, the information about late payments, bankruptcies, collection accounts, etc. remains on your credit history for at least seven years. So, even if you pay off your debts or late payment, they will not remove from the credit history. However, it will get updated and signify as paid.
Credit Bureaus Report People Who Have Bad or Good Score
No, it doesn’t. The main purpose of credit bureaus is to collect information about the person. This information primarily consists of auto and home loans, credit cards, and monthly payments. The lenders use this information to determine to provide a loan to the loan applicant or not. Thus, it is totally a myth that credit bureaus
Your Spouse’s Credit is Helpful
It is again a myth that if your spouse’s credit score is good, then you can get a high-interest rate. When you have a joint account with your spouse, then credit scores and reports of both of them are taken into account. So, even the low score of one spouse can cause you to pay a high interest rate. Thus, both partners need to have a good credit history and score.
Your Education Qualification Also Affect Your Credit Score
Lastly, education qualification doesn’t have any effect on your credit score. Because, a credit history only provides information related to debts, payment history, investments, and other assets. Thus, education doesn’t come under credit history.
Therefore, now you know you can maintain your credit score with easy steps. The above tips and solutions will help you so that you can boost your credit score and have a good history. Along with that, the above myths related to credit score will help you to clear your doubts.