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9 Most Effective Ways to Build Your Credit Score

By The Assam Tribune

A credit score is a 3-digit number that indicates your repayment capacity and creditworthiness to lenders. This score ranges between 300 and 900 in which any score near 900 is considered ideal by lending institutions and NBFCs.

In general, a credit of 750 is effective for a person to apply for a loan. Thus, if this score goes below 750, applicants will find it difficult to get loan approval. This is why it is essential for you to maintain a healthy credit score.

9 Best Approaches to Improve Your Credit Score

The need for boosting your credit score will arise if you want to avail of a new loan or credit card. This score is analysed by several factors like debt amount, repayment history, repayment tenure, etc. Now that you have an idea about the importance of credit score, let's check out some effective tips that you must consider for enhancing it:

Following are the top nine effective ways one must consider in order to enhance their credit score:

  1. Clear Dues on Time

If you are holding a loan, you need to pay it off within the tenure in order to improve your credit score. Since payment history is a vital factor that lenders consider at the time of evaluating this score, you should not keep any record of late payments or failed payments since it will reduce your credit score.

Therefore, it is sensible to use payment notifications or opt for an auto-debit facility so that you can clear your outstanding payments, EMIs, and credit card dues within the specified time.

  1. Limit Credit Utilisation

Another advantageous way to boost your credit score is by lowering your credit utilisation ratio. Lenders check the credit utilisation ratio of an individual at the time of lending credit. Therefore, in order to retain a healthy credit score, you should maintain a credit utilisation ratio below 30%.

This ratio refers to the current credit you owe divided by the total amount of available credit. Thus, you should keep your credit utilisation ratio less than 30%. By doing so, you can track the money you use while holding more than one credit card.

  1. Plan Credit Sensibly

One of the best approaches to enhance your credit score is making a proper plan about utilising your credit wisely. Requesting for too many credits tends to enhance your credit limit. However, your inability to repay the dues as per schedule will affect your credit score drastically.

Furthermore, opting for multiple loans unnecessarily and being unable to clear them will affect your financial situation. So, make sure to plan, apply, and utilise your credit when you really need it.

  1. Retain an Ideal Credit Mix

When it comes to loans, they are classified into two types – secured and unsecured. When you opt for too many unsecured loans like business loans, personal loans, education loans etc., your lender can reject your loan request by considering you credit-hungry.

Also, these loans are offered without any security, so high risk is involved in it than secured loans, like auto loans, home loans etc. To overcome such circumstances, you may keep a proper balance of secured and unsecured loans in order to retain a healthy credit score.

  1. Maintain a Limit on Hard Inquiries

Inquiries come in two types – hard inquiry and a soft inquiry. Soft inquiry occurs if your lender offers you a pre-approved credit card or when you evaluate your credit report. Generally, these types of inquiries do not influence your credit score.

However, while speaking about hard inquiries, it takes place when you opt for a loan. Even though hard inquiries do not affect your credit score, it will still reduce if these inquiries arise recurrently. Thus, you should maintain a restriction on hard inquiries to retain a good credit score.

  1. Analyse Credit Report

Another ideal way to boost your credit score is by checking your credit report. By doing so, you can detect the mistakes in your credit report in order to rectify them as early as possible. Since the credit score is analysed as per the information stated in the credit report, you must make sure that your report is absolutely flawless.

  1. Avoid Applying for Multiple Loans Recurrently

Try to avoid opening unnecessary loan accounts and availing of too many unsecured credit cards far from your capacity. This is because opening new loan accounts repeatedly will determine the incompetence of your present loan accounts to meet your financial needs. Sooner or later, your credit-hungry activities will put you under a hefty loan burden, and your credit score will drop significantly.

  1. Avoid Closing Old Accounts

Always try to avoid closing your old accounts or credit cards, as it is not a sensible decision. This is because it exhibits your long-time association with your financial institution and your long repayment history. Therefore, when you close your old credit accounts, the significance of your earlier payment record will be in vain. Besides you will end up worsening your credit score.

  1. Use Secured Credit Cards

Another effective approach to build or improve your credit score is by using a secured credit card. This specialised card is funded by cash deposits that you have to pay before, and the amount of the deposit will be equal to your credit limit.

Generally, this card helps those people who have a low credit score or ineffective credit history. By using a secured credit card, you can make timely payments, thereby boosting your credit score.

Now that you have understood how to improve your credit score and maintain a proper history, you can easily do it by considering the pointers mentioned above. Also, if necessary, take the help of professionals in order to guide you in this issue.

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9 Most Effective Ways to Build Your Credit Score

A credit score is a 3-digit number that indicates your repayment capacity and creditworthiness to lenders. This score ranges between 300 and 900 in which any score near 900 is considered ideal by lending institutions and NBFCs.

In general, a credit of 750 is effective for a person to apply for a loan. Thus, if this score goes below 750, applicants will find it difficult to get loan approval. This is why it is essential for you to maintain a healthy credit score.

9 Best Approaches to Improve Your Credit Score

The need for boosting your credit score will arise if you want to avail of a new loan or credit card. This score is analysed by several factors like debt amount, repayment history, repayment tenure, etc. Now that you have an idea about the importance of credit score, let's check out some effective tips that you must consider for enhancing it:

Following are the top nine effective ways one must consider in order to enhance their credit score:

  1. Clear Dues on Time

If you are holding a loan, you need to pay it off within the tenure in order to improve your credit score. Since payment history is a vital factor that lenders consider at the time of evaluating this score, you should not keep any record of late payments or failed payments since it will reduce your credit score.

Therefore, it is sensible to use payment notifications or opt for an auto-debit facility so that you can clear your outstanding payments, EMIs, and credit card dues within the specified time.

  1. Limit Credit Utilisation

Another advantageous way to boost your credit score is by lowering your credit utilisation ratio. Lenders check the credit utilisation ratio of an individual at the time of lending credit. Therefore, in order to retain a healthy credit score, you should maintain a credit utilisation ratio below 30%.

This ratio refers to the current credit you owe divided by the total amount of available credit. Thus, you should keep your credit utilisation ratio less than 30%. By doing so, you can track the money you use while holding more than one credit card.

  1. Plan Credit Sensibly

One of the best approaches to enhance your credit score is making a proper plan about utilising your credit wisely. Requesting for too many credits tends to enhance your credit limit. However, your inability to repay the dues as per schedule will affect your credit score drastically.

Furthermore, opting for multiple loans unnecessarily and being unable to clear them will affect your financial situation. So, make sure to plan, apply, and utilise your credit when you really need it.

  1. Retain an Ideal Credit Mix

When it comes to loans, they are classified into two types – secured and unsecured. When you opt for too many unsecured loans like business loans, personal loans, education loans etc., your lender can reject your loan request by considering you credit-hungry.

Also, these loans are offered without any security, so high risk is involved in it than secured loans, like auto loans, home loans etc. To overcome such circumstances, you may keep a proper balance of secured and unsecured loans in order to retain a healthy credit score.

  1. Maintain a Limit on Hard Inquiries

Inquiries come in two types – hard inquiry and a soft inquiry. Soft inquiry occurs if your lender offers you a pre-approved credit card or when you evaluate your credit report. Generally, these types of inquiries do not influence your credit score.

However, while speaking about hard inquiries, it takes place when you opt for a loan. Even though hard inquiries do not affect your credit score, it will still reduce if these inquiries arise recurrently. Thus, you should maintain a restriction on hard inquiries to retain a good credit score.

  1. Analyse Credit Report

Another ideal way to boost your credit score is by checking your credit report. By doing so, you can detect the mistakes in your credit report in order to rectify them as early as possible. Since the credit score is analysed as per the information stated in the credit report, you must make sure that your report is absolutely flawless.

  1. Avoid Applying for Multiple Loans Recurrently

Try to avoid opening unnecessary loan accounts and availing of too many unsecured credit cards far from your capacity. This is because opening new loan accounts repeatedly will determine the incompetence of your present loan accounts to meet your financial needs. Sooner or later, your credit-hungry activities will put you under a hefty loan burden, and your credit score will drop significantly.

  1. Avoid Closing Old Accounts

Always try to avoid closing your old accounts or credit cards, as it is not a sensible decision. This is because it exhibits your long-time association with your financial institution and your long repayment history. Therefore, when you close your old credit accounts, the significance of your earlier payment record will be in vain. Besides you will end up worsening your credit score.

  1. Use Secured Credit Cards

Another effective approach to build or improve your credit score is by using a secured credit card. This specialised card is funded by cash deposits that you have to pay before, and the amount of the deposit will be equal to your credit limit.

Generally, this card helps those people who have a low credit score or ineffective credit history. By using a secured credit card, you can make timely payments, thereby boosting your credit score.

Now that you have understood how to improve your credit score and maintain a proper history, you can easily do it by considering the pointers mentioned above. Also, if necessary, take the help of professionals in order to guide you in this issue.

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