How to maintain a good credit score?

You might be known that loan applications often get rejected due to less credit score. Have you ever thought what leads to constituting your credit score? Keep in mind, only repaying your loans in time doesn’t edge a good credit score as there are other factors also which impact our credit history. A good credit history can be maintained by following these simple rules:

Pay your dues on time:

Paying your EMIs regularly helps in upgrading your credit score whereas a delay in payment negatively affects your credit score as well as your credit history. Making late payments are viewed negatively by the lenders and affect drastically the chances of getting your loan approved.

Use your credit limit wisely:

Don’t fully utilize your credit limit on your credit card. You must be careful not only about making payments in time, but also about using your credit limit. If you over utilize your limit, the negative it is for your credit score. It is always prudent to use up to half the limit of the sanctioned amount on your credit card. Avoid relying on borrowings and secure yourself financially while using lesser credit limit.

Uphold a healthy mix of credit:

Usually, a borrower credit history should sustain a mix of secured loans and unsecured loans. Secured loans comprises of Home loan, Car loan etc. whereas unsecured loans comprises of Personal loan, Credit card etc. If the borrower is defined to high mix of unsecured loans, then the risk of default increases. The indefinite credit history should contain a mix of a home loan, car loan and a couple of credit cards.

Regularly inspect all your accounts:

You should examine your co-signed, joint and guaranteed accounts monthly and ensure that all your loan repayments made in time. As a guarantor or co-applicant, you are held equally liable for missed payments. Remember, your joint holder’s negligence could affect your ability to access credit when you need it.

Avoid applying frequently for loans or credit cards:

Many inquiries for loans or credit cards may affect your credit score. The lender will take it negatively as the borrower behaviour shows ‘credit hungry’ and indicates that the debt burden is likely to or has increased and you may be less capable of keeping any additional debt. If you have made many applications for loans or credit card, it could reflect in your credit report which will lead a loan provider to view your application with caution.

Monitor your credit report timely:

Paying your dues in time does not initiate a good credit score. As some errors like inaccurate late payment may pull your score down. So, reviewing your credit information report frequently may ensure that your credit history reflects your current financial status accurately without any errors.

Source- Secondary