Credit score is one essential component of your financial system. It speaks volumes about your credibility and stability when you apply for loan and allied services based on this score.
All those individuals who do not have sufficient knowledge about finance may not be aware of the significance that a credit score holds. All in all, credit score is the immigration check which you need to clear and without its clearance, you cannot board the flight (acquire loan.)
You cannot build a good credit score overnight. You need to put in constant efforts to achieve a good credit score as it gives a clear picture of your past and present actions.
So, you can follow these steps in order to enhance your credit score-
Step#1-Constant eye on credit card balance
Credit card revolves around various factors but of all those factors, the one that matters the most is the credit that you have compared to what you use. It is very important to bridge the gap between the two. A greater distance between the two can have a severe negative impact on your credit score.
An individual must use at least 30 percent or less than the potential credit limit. It is recommended to pay off your balances as soon as possible and keep them low. In case you have multiple credit cards, then you can combine it all with a personal loan as this will help better your score.
There are instances where you may notice that although you have paid off outstanding monthly dues, you still have higher utilisation ratio. In order to avoid such a situation you can ask your service provider if they accept multiple payments in one particular month.
Step#2-Leave old debt on report
Often, it has been observed that people are in a hurry to get rid of an old debt mentioned in their report. You cannot deny the fact that a debt has negative impact on your report which is the reason why you want it eliminated from your report once you pay it.
However, you must consider the fact that this is a financial process and cannot be done overnight. Usually, 6-7 years is the period in which your old debt will be entirely eliminated from your report.
In such a case, you must focus on increasing your good debt and keep it constant in order to maintain your current credit score.
In simple words, credit score is very similar to the yearend report card that a kid receives. This report calculates all the different grades that students have scored in that particular year. So, if the student has scored an A in semester 1 and C in semester 2 both, will be mentioned in the card. Likewise, credit score accounts all your good and bad debts.
Apart from this, you must also check that you are paying for your debts and not any other additional policy. If you notice that you are being charged for any other policy like PPI which you did not apply for, then you can claim for PPI yourself.
Step#3-Pay bills on time
You may be an individual who pays each and every bill on time. But at times you might just forget about a certain bill that has to be paid and you pay for it after the due date is long gone. Financial advisors suggest not committing such a mistake because it effects your credit score.
For instance, you are planning to purchase a car towards the end of the month which means a major part of your income will be spent on it. There are chances that you may run short of funds and skip paying your bill. Try avoiding this.
Do not forget that payment of bills is a part of the credit score calculation. Therefore, you cannot gamble with all factors that are accountable while calculating the credit score. If you are not aware of all the factors you can ask your financial service provider to offer details regarding them.
Step#4- Don’t take risks
In some situations, it is better not to stress on increasing your credit score because you may end up decreasing it. So in order to merely stick to your current good credit score, avoid changing your current financial habits.
Also, people tend to get obsessed with credit score and their behaviour tends to revolve around increasing your score. Instead of getting obsessed with your credit score it is better to just keep a check on it.
Step#5- Use Calendar
You may be spending money on a daily basis. But, it is important to take a note of it just to be conscious about where you are spending it and how much. If at all you are spending for your home, car or a loan installment, then note it down in your diary or in the calendar.
If you are used to go shopping on a regular basis or going on unplanned shopping spree, then mark your visits. This will help you to determine how frequently you use your credit card and whether you should curb down its usage. Remember, that if you have additional loan payments, then get rid of the credit balance soon. This is so because pending balances and payments have a huge impact on your credit score.
There are provisions to track your credit score, through which you can constantly analyse it and keep tabs on your spending habits. This can be done at an interval of 3-4 months and some financial service providers can track your credit for free.