Credits, Credit Score and Credit report have become an integral part when we talk about the world of loans and credit cards. Any credit is taken, loan or credit card and its repayment is the basis of your credit score and the report is the details description of it. Just as we all know, a score is a three-digit number between 300-900 where the highest score is 900 and 300 is considered the lowest. 750+ is a good score, between 600-750 is an average score and 600 or less is low!
It is made up of five parameters.
Inspite of knowing these attributes, one may miss few aspects and get their selves to drain in 600 or low club. Follow these simple rules to avoid bad score.
1. Old loans should be closed and not settled There is a difference between closed and settled which one has to understand when it comes to credit accounts. Closed account signifies that the borrower has paid all the principal amount along with the interest. Settling means, there were a few dues which were to be cleared and just so that there is no bad debt on the lender’s book.
2. Don't miss due dates The thumb rule for credit is repaying on time! Whether it is a loan EMI or the credit card bill due date. Never miss them. It may occur that one late payment won't make any difference. But eventually, it does! So, due dates should always be taken care for. Because, eventually, the score may go lower and one would have to apply the loan for low cibil score which would charge huge interest rates.
3. Credit report should be error free Check your credit report every six months. If you feel any of the entry is not proper and there is an error. There is a credit line which you may not have applied for or a transaction which is not made by you, make sure that the dispute is raised.
4.Healthy credit utilization ratio Remember 30%-35% credit utilization ratio. Always remember while using the credit card, you should not exceed its usage by 30% to 35% of its actual limit. If done so, the bank understands this as credit hungry behavior which gives a bad impact on the score.
5.Credit mix There are four types of credits. Secured and unsecured type of credits and fixed and revolving types of credits. Your credit report should be a good mix of all these credits. This also has weightage on your score.
6. Use the oldest credit card As mentioned, length of credit history is also one of the parameters in score building. Older the account, better is the score. So try and use the oldest card you have. Keep it active and make payments from it! That will add up a good balance and helps in maintaining and increasing the score.
7.Applying for too many credits Applying for too many credits thinking that new credit is also a parameter of the score will take you nowhere. When one applies for many credits, it shows that the borrower is in much need of funds and hence he/she is applying for too many credits. Even the personal loan application may get rejected if applied for too many times!
Keep in mind those five parameters of how the score is made. And then a few simple rules to always keep your score in 750+ line!