What is Credit Score: It is a statistical number based on your credit history, repayment habits and other financial data collected by rating agencies from financial institutions. Your credit score indicates your creditworthiness. This data is collected by the rating agency on the basis of SSN in Permanent Account Number (PAN – India issued by Income Tax Department) or USA. Each rating agency can provide different weight-age for different parameters used to determine it. Generally, this happens between 300 to 850 digits.
With the credit score examined, the lender gets an idea about the possibility of default by the borrower, if the loan / credit facility is given to him / her. The more credit score is likely to get the loan at better rates. So it is important for you to check it before applying for a fresh loan or credit. Credit scores below 600 are considered poor and generally financial institutions avoid loans to such individuals. By maintaining financial discipline, you can easily improve it. Very little things or ignorance can seriously damage your creditworthiness. By paying a little attention to these small things, you can improve the credit score and take advantage of the cheap credit facilities.
To improve your credit score, you should follow some dos and donuts.
1. Do not delay payment of installments due to existing loans.
2. Always pay the credit card bill periodically. If possible, use the ECS or Auto Debit facility on your card bill payment, so that there is no chance of forgetting the bill payment after the due date.
3. If possible, try to prepay the existing loan. Due to fixed EMIs or a little overpayment above the installments, you not only help in reducing interest, but also helps to improve your credit score.
4. Maintaining good and long banking relationship with the existing banker helps you increase the credit score. Replacing your banker frequently, especially the business-related loan facilities, can bring it down.
5. Pay your utility bills such as electricity, mobile, insurance premium, municipal taxes etc in a timely manner. Although these are not reported directly for credit score checks, they help you to maintain financial disciplined life.
what not to do
1. Do not take separate loans from different banks. Try using the maximum credit facilities from one or two banks. For example, you have two home loans, two car loans and one personal loan. Such a system will pull down your credit score. Try to transfer all these five loans to one or a maximum of two banks.
2. Do not rotate credit card balance from one card to another. You do not have the means to pay credit card bills by moving the balance from one card to another. This severely damages your credit worthiness.
3. Do not use or use the credit card limit completely. If you reach the 90% limit regularly, ask the credit card issuer to increase your credit limit.
4. Do not close your old credit card without any reason or because you have taken a new card. Regular billing history with bill payment, better credit score
5. Don’t take too many credit cards from different banks. Maintain a maximum of 3-4 cards with the same number of banks. If you use these cards regularly and pay the card bills on time, your card company will be happy to increase your card limit.
6. Do not remove the cash from the ATMs with the CREDIT cards unless it is an extreme emergency. Repeat cash withdrawal from the credit card account reduces your credit worthiness, instead use a debit card associated with your savings account for cash withdrawal.
Try to get your credit score sheet once a year, so you can know where you are standing. If you find any error in the reported transaction on your sheet, then immediately report the same to the concerned financial institution for improvement and updating with rating agencies, especially when you are planning to get a fresh credit / credit facility.