If you key in the phrase “how to improve my Credit score”, at least a hundred sites will pop up on google about the said topic. Almost every single one of these articles will give you generic advice on “paying bills on time” or “minimizing spending”. These generic pieces of advice work, no doubt about that. But most of these don’t provide any practical measures in my opinion. What I am writing here is from my own personal experience. By the way, if you are wondering ‘where can I check my credit score for free?’, you can visit the website of CIBIL. There are some third-party sites that provide this service for free too.
Every country has its own credit rating agencies to collect data and provide information about the people’s worthiness. People living in India will be familiar with CIBIL score (credit rating score). So, what is a good credit score in this system? A score of 750 is considered decent. You can get a maximum of 900 in this rating system. Anything over 800 indicates that you are the creditworthy person in India.
At one point of time in my life, my score was as low as 570, which is as low as it gets if you are in the middle-income category in India. However, my present-day score is 860. How I got to this point in a period less than 4 years is what I am about to reveal here. If these methods worked for me, it can work for anyone. So, without further ado, let’s start with it.
1. Stop applying for loans or credit cards
I got to know about my poor credit score when I was applying for a personal loan. After multiple loan rejections without giving any reason, one agent was kind enough to let me know that my credit score was way below the acceptable level. If you are facing this kind of a situation, you must stop applying for loans altogether (at least for a while). With every single application (and subsequent rejection), you will be branded as “credit hungry” by lenders. This is a high-risk segment as far as financial companies are concerned.
The credit data in India is way more centralized than you think. As soon as you enter the credit circle, agencies keep track of your credit status in their database (this is how your credit score is generated). Application after application will only bring down the score even further. If you want better scores on your annual credit report, the best thing you can do is to stop applying for any loans or credit cards. At least till your score improves, your credit history must be clean without any new requests.
2. Improve your overall income (or try your best)
I am a salaried employee at the time of writing this article. One significant change that happened over the 4-year period I mentioned was that my salary increased by about threefold. Rather than panicking about my credit situation, I did my best to improve my skills and get better job roles. I must say that it paid off. After 2 years of reeling under credit crunch with unpaid student loans (main reason for my low score) and other issues, I was able to manage my finances better with my higher income.
I do know that it may not be possible for everyone to dramatically increase their income. But try your best to reach a level where you can take care of finances easily without taking any loans. Even if you are not able to increase your income, try to cut down on your expenses to reach a level where you have at least some kind of disposable income every month. When the balance in your savings account increases, it is a good sign that you are becoming creditworthy. I did pay off my student loan and all other loans eventually when my monthly earnings increased.
3. Pay your bills on time
Well, this might sound a bit cliched but there is no other way to say it. If you are hoping to improve your credit score, you must be debt free. If you are piling up your credit card bills and other expenses, you will never get out of this debt circle. Take some drastic measures if you have to but make sure that your bills are paid on time without fail. Failure to pay credit card bills is a big sign that you are facing financial woes. Credit rating agencies take this very seriously, and they modify your score accordingly. Also, if you are not able to pay your credit card bills on time, stop using them altogether. Paying for expenses with the available cash will help you manage them wisely.
4. Manage your finances wisely
If you are thinking that this is easier said than done, think again. Keeping track of your finances and managing them properly is not that difficult. Always spend within your monthly earning limit. At least till your credit score improves, avoid spending any money on luxury products. The new car that you have been eyeing can wait for a year till you get out of your financial troubles.
As soon as my credit situation improved with a better salary, I got a credit card (only one) to pay for things that I can buy in easy monthly installments. I never exceeded 25% of the maximum spending limit at any given moment and paid the bills on time (extremely crucial). Also, my investment habits picked up even before I was barely out of my credit crunch. Wise investment choices (fixed deposits, recurring deposits, insurance schemes, etc.) are a good sign that you are doing well financially. With a strong investment portfolio, you can manage your finances wisely.
5. Keep spending
Yes, you read it right. To indicate that you are doing well financially, you must keep spending (only on things that you need) within your available income. After two years of my lowest score (570), I was able to get out of my credit crunch by following the above tips. My credit score at this time was a little over 700. I had a few thousand rupees of disposable income every month at this point. With this money, I was able to buy things like a new laptop, a new TV, a new cellphone, etc. one by one.
Also, I bought certain items in monthly installments with my credit card (never exceeded the 25% of the maximum limit). Credit utilization ratio (the ratio of the outstanding balance to the credit limit) must always be under 35% if you are looking to improve your score. With more spending, you can send a positive message that you are financially sound.
Bouncing back from poor credit score is a little difficult for most of us, but it is not something impossible. You must know that it will not happen overnight. You must be patient enough to follow the above things without fail. It took me about 3.5 years to reach a level of comfortable financial stability. This is something that anyone can do no matter how bad your score is right now. Never lose hope at any moment. With a proper strategy, you can turnaround your credit situation like the way I did and get rid of your financial woes.
The post How to improve your credit score: 5 practical steps that worked for me appeared first on GK Samurai.