10 Steps to Fix Your Credit Score

A good credit score lets you borrow money at attractive interest rates and also makes way for premium credit cards.  A credit score of more than 700 makes you a prospective candidate for lenders. On the other hand, having a bad credit score means you will face a tough time qualifying for loans and will have to pay higher interest rates than regular loan customers.

Credit Score

Often, even a missed payment here and there could cause your credit score to drop. But getting your credit score back-up is not an impossible task. You can get an excellent credit score by carefully implementing the below-given tips. It takes patience and diligent efforts on your behalf when improving your credit score.

Tip#1: Get a copy of your latest credit report:

To start improving your credit score, you need to know how much it is. As the actual information on how to improve your credit report is present in the credit report, you do need to obtain a copy. There are many platforms through which you can request a free credit report. They will contain all the information about your past and latest credit history. Comb through each information thoroughly and note down what activity has caused your credit score to dip.

Tip#2: Rectify any errors found in the credit report:

Having an accurate credit report is a must for your financial records. In case of any inconsistencies in your credit report, get them corrected immediately. You can cite the credit report errors by disputing them and approaching the credit bureau or the creditor who handled the account. Mistakes can be detrimental to your credit scores more than you think.  For example, an inaccurately reported payment can bring your score by 60-100 points.

Tip#3: Say ‘No’ to new credit cards:

When you are on the path of improving your credit score, it is crucial that you say no to new credit cards. The reason is that it will increase your credit utilization ratio- the ratio of your credit card balances to their respective credit limits.

The higher the credit utilization ratio, the more it affects your credit score. Even making inquiries for new credit cards could also potentially affect your credit score. Opening a new credit account will also lower your credit score as it damages your credit-free period.

Tip#4: Pay off your debt:

Your repayment history constitutes 35% of your credit report score. The further you fall behind, the more your credit score gets affected. Get caught up with your late or missed credit payments before they are saddled with high charges or shipped off to a collections agency.

Talk to your credit card issuer and try to reach an amicable solution where they might be willing to modify your account so that your credit report shows that you have made your payments on time.

Tip#5: Say ‘No’ to credit card purchases:

Substitute cash for your credit card purchases to lower the impact on your credit score. Even better, see if you can avoid that purchase and try using that cash for footing your credit card bill. Lowering your balance can help in improving your credit score.

Tip#6: Leave old credit card or loan accounts open:

One of the first mistakes we do when we notice a settled debt account in our credit report, is that we raise a dispute with the credit bureau and urge them to remove that account.  Do not try to remove those accounts as long as they report timely payments. Having a credit account with a long history of payments on-time, every time is a great way to convince lenders that you are a financially responsible person.

But before closing an account on your credit report, see what impact it has on your credit report. For example, closing a credit card with balance will negatively impact your credit score. It is a rare scenario, where closing a credit card can help you in raising your credit score.

Tip#7:  Maintain friendly relations with your creditors:

Having to talk to your credit card issuer might be the last thing on your mind, but it does not hurt to have them on your side. In fact, you might be surprised at the help you receive from them. In case you are unable to remove a negative comment from your credit report even after multiple tries, then all you have to do is talk to your credit card issuer. Try explaining your situation in a polite manner and have them remove the negative comment.  Maintaining good relations with your lenders definitely has its perks.

Tip#8: Pay off some debts:

The ratio of debt constitutes about 30% of your credit score. Having a higher debt ratio of more than 30% is detrimental to your credit report and will pull the numbers down. Try closing some of them by paying them off. The lower the debt ratio, the higher the credit score. Pay all your existing bills on time every time, and if you have something extra, pay it towards your debt and settle them.

Paying all debts balances may be hard for a short-term move for increasing your credit score. It works better in the long run. Not only your credit ratings will improve over time, but it will also make you debt-free.

Tip#9: Keep your old credit cards:

Your old credit cards still have a meaningful impact on your credit rating. Say, for example, you have a credit card of 5 or 6 years, then it is given that you would have built a good credit history. Closing them will decrease your overall average credit activities and have a negative impact on the score, especially in the short-term.

Tip#10: Be patient and diligent in your efforts:

Building a healthy credit score takes time and energy; it is a marathon rather than a short-race. The changes won’t happen overnight, as the damages didn’t happen overnight. Continue paying your bills on time every month, and you will notice your credit score improving slowly but surely.

Author Bio: Shruthi is a financial analyst by profession and has been working with Shriram City Finance for quite a few years. She is primarily interested in the financial domain, with the main focus on personal loan, insurance, and deposits. She is a fan of the Indian cricket team and loves to play badminton on her spare time.

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