If you apply for a credit card or loan, your credit score is reviewed to decide how likely you are to repay the amount on time. In most cases, your credit score also plays an important role in calculating your personal loan interest rate as well. However, building a credit score is a relatively slow process that takes into account factors such as credit payment patterns over time, revolving credit, account type, and how often you apply for credit. Here are some undeniable ways that can help you start improving:
1. Ensure That Your Credit Reports Are Accurate
Credit reports are often inaccurate, and this directly leads to a bad credit score. Therefore, you must review your credit report for errors or discrepancies by credit bureaus such as TransUnion, Equifax, or Experian in the US, or CIBIL in India.
Here's a checklist of questions you can use to help you spot errors if any:
- Is your personal information correct?
- Are all your credit accounts being reported?
- Is the late or missed payment information correctly listed?
- Are there any accounts or applications listed that you don't recognize?
- Are there items from decades ago that are still appearing on your report?
2. Highlight What Needs To Be Improved
If your report reflects a poor credit score, it could be due to a variety of factors. To increase your credit score quickly, focus on the possible reasons, and work them out one by one.
The following are important factors that affect your credit score:
Late payments can affect your payment history, and bad payment history has the most significant impact on your credit score.
If you've just started using a credit card, there isn't much data to help. So, you have to be patient and wait for your credit score to increase.
Lenders want to make sure that you can handle different types of credit. So, if the only credit you have is through your credit card, then it can harm your credit report.
Applying for multiple credit cards in a short period of time can make lenders worry that you are overburdened financially.
3. Strong Credit Age
A good age of credit history is ideally 5 years or more. So keep making small bills for at least 5 years and pay them off on time to have a good credit history. To get an early start, ask a friend or relative with a good credit history to add you as an authorized user. This way, you will not be pressured to pay and still be able to create a credit history.
4. Open New Credit Account Only When Needed
Opening multiple accounts for a better credit mix is a fairly common assumption that may not improve your credit score. You also have to be more careful to open a new credit account, think about the interest that doesn't make it difficult for you.
5. Leave Unused Credit Accounts As They Are
If you no longer need it, you should close your credit account. Because credit providers usually close the history if you haven't used it for so long.
6. Monitor Your Credit
When you check your own credit report, a soft query is pulled, which does not affect your credit score. So, review your credit report every few months and identify how you can manage your credit better.
7. Time Your Applications Wisely
The effects of a hard inquiry can last from 6 months to 12 months. So, refrain from applying for a loan or a credit card within short time frames. This way, you can keep your hard inquiries at a minimum.
Improving your credit score takes time, but when optimized, it can open many doors for you. It can influence your personal loan interest rates, your life insurance rates, and other factors. So, ensure that you follow these steps and stay consistent.
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