A good credit score can help you get favorable terms on a number of financial products, from loans to credit cards. Whereas, having a bad credit score can make it harder to qualify for loans and new lines of credit. If you’ve made it your goal to boost your credit score in 2022, here are five strategies to consider:
What Is The Credit Score?
The credit score is a 3 digit number that is a summary of your credit history. It indicates your creditworthiness. Banks and financial institutions evaluate your credit score when applying for a loan or credit card. The credit score is computed using your credit history, that has information about all your payments, number of loans, credit card used by you, etc. When your credit score is high, your chances of getting a loan or credit card is high, whereas when your credit score is low, the chances of getting a loan or credit card decreases. This is because banks or other financial institutions do not trust people with a low credit score and hesitate to give them loans or credit cards. Also, even if you get a loan or credit card with a low credit score, you will get only a low credit limit and you may have to pay a high interest rate on your loan. Thus, the only best way is to improve your credit score.
Tips To Boost Your Credit Score 2022
Review Your Free Credit Reports
The first step to boost your credit score is identifying areas where you can make improvements. One effective way to do this is to review your credit reports from any of the four major credit bureaus – Equifax, Experian, and TransUnion CIBIL TM, and CRIF High Mark. Check your credit reports for errors, such as missing accounts or clerical errors that result in incorrect missed payments. Then, dispute any errors by contacting the credit bureau. The credit score is computed based on the details in the credit report. So, you must ensure that this report is error-free.
Make Timely Payments of Loan EMIs And Credit Card Bills
Your payment history is one of the most important factors in deciding your credit scores. Having a long history of timely repayments can help you achieve an excellent credit score. You must ensure that you do not miss any loan or credit card payments for a solidly long period of time to get to this excellent credit score. If you pay your loan EMI or credit card bill on time, then you will be credit healthy over the period of time.
Do Not Just Pay The Least Amount Due
You should make the payment of your credit card bills either in full or at least pay more than the least due amount. Paying the least outstanding amount reduces your chance to improve your credit score.
Maintain Credit Card Limit Utilization Below 60 to 70%
The credit utilization ratio is one of the most significant factors that is taken into account when computing the credit score. The amount of credit that is available to you versus how much of it you are utilizing shows your dependency on credit. It is always wise to keep the credit utilization ratio below 30%. So, if you have multiple credit cards, keep track of how much money you are using on credit. Also, try to find a credit card issuer who will obtain multiple payments in a month.
Do not remove old accounts from Report
Sometimes, people tend to remove old accounts, deactivated accounts, or accounts with negative history from their credit report to make it look clean. Sometimes, they try to remove old debts from their reports once they are paid. But, this is not a fine thing to do. Although negative history is bad for the credit score, they are auto removed from the credit report after a certain period of time. Getting old accounts removed may have a considerable negative impact on your score as they may have a good repayment history. Also, if you have paid off your debts, then you should keep them in your report as they will improve your credit score and indicate your creditworthiness.
Maintain A Healthy Credit Mix
Having a healthy credit mix will help you maintain a good credit score. If you have too much of one type of credit, it may have a negative impact on your score. Having a healthy credit mix will help you when you are looking for a loan in the future.
Have A Limit On The Number Of Hard Inquiries
There are two kinds of inquiries that can be performed – a hard and soft inquiry. When you check your own credit, it is called a soft inquiry. When a potential employer looks through your credit, or if any checks are carried out by financial institutions (with which you are already into business), these are called soft inquiries. Soft inquiries do not have an impact on your credit score. A hard inquiry is something that happens when you apply for a credit card or a loan. Hard inquiries which do not take place frequently will not affect your credit score. But, if they are conducted frequently within a short span of time, it will have a negative impact on your credit score. Banks will take this to mean that you are in need of credit because you are facing a financial crunch.
Go In For Debt Consolidation
If you have too many debts, you can take out a debt consolidation loan from your bank or NBFC. You can then clear off all the debts, since you will have to make only one payment. If you can get a lower interest rate on your loan, you can pay the debt faster. Balance transfer is another way to consolidate many credit card balances. Some cards have a promotional period, and during this period, they will levy 0% interest on your card balance. However, the balance transfer fee ranges between 3% to 5% of your amount.