When it comes to applying for a loan, any person who’s delved into the lending process can attest that their credit score played a significant factor in governing the approval of the loan. People with excellent credit scores receive tailor-made offers from banks and financial institutes at times.
So, more often than not, a loan that they personally apply for will get approved in an instant. Meanwhile, people with poor credit scores end up receiving the short end of the stick when it comes to applying for a loan. This includes stringent loan restrictions – if not an outright rejection of the credit line they’re seeking out.
Understand your credit score first
Before you work on improving your credit score, it is important to understand how credit scores are calculated. There are 5 essential factors that make up a great credit score:
- Payment History (35%): Whether you paid your dues timely or not.
- Amounts owed (30%): The total amount of debt you have divided by the amount of credit that is available to you across all card accounts as well as on individual accounts. This can be also termed as your credit utilization ratio.
- Length of credit history (15%): How long you have possessed credit.
- New credit (10%): How often you have applied for and opened new accounts.
- Credit mix (10%): The mix of different credit accounts such as instalment loans, credit cards, and finance company accounts.
Now that you’re more aware of how credit scores work, let’s talk about a few ways in which you can raise this score.
Raise your available credit – Your credit utilisation ratio plays a significant role in dictating your credit score. In case a poor ratio is hampering your credit score, you can ask the financial institution in question to raise this credit limit. Doing so will help improve your credit utilisation ratio and – subsequently – your credit score.
Pay your credit card balances – Most people are content with paying a minimum on their credit card amounts as opposed to paying the entire sum in one go. Don’t be complacent in this regard – pay your due balance before the date passes to ensure that your credit payment is favourable for both you and the lender.
Analyse and address any discrepancies in your credit report – While errors on a credit card report aren’t frequent, they’re still a possibility. If you feel like you’ve managed your debts responsibly but your credit score isn’t indicative of the same, then you should analyse your score and report any discrepancies that might be hampering your credit score. It’s best to do the same sooner rather than later to prevent any problems from arising in the future.
Fix Inaccurate Credit Reports – A study by the Federal Trade Commission reported that 1 in 5 consumers had some kind of error on their credit reports from one of the three main credit reporting agencies. This implies that a little more than 65 million people currently have one or more errors on their reports.
The most common errors include:
– Incorrect personal information
– Missing open credit accounts
– Open credit accounts that don’t belong to you
– Credit inquiries that you did not make
– Late payments that were timely paid
Fixing these errors will have an instant and sometimes, a very dramatic positive impact on your overall credit score.
Diversify your credit portfolio – Another great course of action that you can take to improve your credit score in a short span is by opting for other diversified forms of credit. While the idea of additional debt might sound bad on paper, taking different types of debt that you can manage over a short period can go a long way in improving your credit score. Raising your credit score in 30 days might seem like a nearly impossible task.
However, following the advice mentioned above can go a long way in ensuring that you don’t face any hardships later on when it comes to getting a line of credit. For an in-depth analysis of your financial situation and credit score, reach us at firstname.lastname@example.org or call us at +91-120-6465400.