The importance of credit score for credit approval is widely understood by most of the borrowers nowadays. Having said that, the fact that their credit score can be improved is still not realised by the majority.

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Credit score is a three-digit figure which is used as a tool to assess your creditworthiness.

According to a social media survey conducted by CreditMantri, 61.5 percent of the people believed that a bad credit score lasts forever.

One should understand the fact that his/her credit score can be improved, as the lenders usually prefer the borrowers with a good credit score. So, if one is stuck with a bad credit score, there are ways by which they themselves can improve it.

Ways To Improve Credit Score

To improve your credit score you’d have to show the lender that you are behaving responsible towards your credit and will continue to behave that way. If you have a bad credit score, you can follow the below mentioned steps and you will see considerable growth in your score.

Resolve Negative Accounts

Your accounts get a negative status if you have defaulted on the past payments. It means any missed payments on your loans or credit card bills would lead to a negative status. Moreover, your accounts can also get a negative status if you have settled your loan/credit card with the lender for an amount lower than your outstanding amount.

Generally, negative accounts are the core reason for the credit score being low. So, you should clean close all your current negative accounts as a first step to reach to good credit health.

Make On-Time Payments

Your loan and credit card payments form the most essential component of your credit history. The way you have made your payments on your credit account would give the lenders insight into your attitude towards managing your credit. They will also get to know that if you are responsible with the credit product you have applied for through them.

Hence, to improve your credit score, you need to consistently make your loans and credit card payments in full on time. The more responsibly you manage your credit, the more the lenders will trust you.

Keep Your Credit Utilisation Low

Credit utilisation is the amount of your credit card balance compared to the credit limit that was allocated to you. If you consistently utilise more than 50 percent of your credit limit, lenders view you as a credit hungry person and may have some forebodings on lending you.

The ideal credit utilisation ratio is 30-40 percent. If you are a spendthrift, you could split your spends by getting an extra credit card or asking your lender to increase your credit limit. But, before doing so, you need to consider repayment ability for the same.

Do Not Apply For Credit With Bad Score

If you have a bad credit score, your chances of getting rejected for loans and credit cards, especially unsecured ones, will be very high. Also, each time you apply for a credit product, it is counted as a hard enquiry. High number of hard enquiries within a short period will have a negative effect on your credit score.

So, if you apply for a loan or credit card with a bad credit score and get rejected, it will bring your score further down.

Ways Ahead

You should start by monitoring your credit score regularly and analysing your credit report. Through your credit report, you’d be able to get the details of your negative accounts and take appropriate actions to resolve those. After making a clean closure, you should make sure you are showing a responsible behaviour towards credit for three to six months.

If you do it correctly, you will definitely see considerable improvement in your credit score.

Ranjith Punja is co-founder and CEO of CreditManrti.

First Published:Mar 27, 2019 6:02 AM IST