Navigating the world of personal finance can be like venturing into an unknown labyrinth.
At the centre of this maze lies the much-coveted treasure, an exceptional credit score.
An impressive credit score can be your golden ticket. A good credit score is a key that unlocks a world of opportunities for borrowers. It makes their financial journey a breeze. A high credit score works wonders, from loan approvals to competitive interest rates. Even if you do not have a good credit score, you can fix your credit score with the few tips mentioned below.
Let’s plunge unearth the secret of achieving the best credit score.
A Game of Numbers: What Makes a Credit Score Great?
The term’ credit score’ might appear cryptic. It is nothing more than a numerical representation of your financial credibility. In India, the credit score ranges between 300 and 900. When discussing the ‘best credit score’, we are looking at a score of 750 and above.
Why does this magical number matter?
Here are a few reasons:
● Loan Approval: A score of 750 or more almost always guarantees loan approval. Rohan’s case justifies the importance of having a high credit score in the best possible way. A salaried employee applying for a home loan with a high credit score helped Rohan find out that getting approval would be a smooth process.
● Negotiable Interest Rates: Individuals with a high credit score have more bargaining power and can negotiate better loan interest rates.
● Quick Processing: Loan applications of individuals with a good credit score tend to get processed much faster.
● Higher Credit Limit: Borrowers can get a higher limit on their credit card if they have a high credit score.
The Pitfalls: Mistakes That Can Hamper Your Credit Score
Now that you understand my credit score, it pays to know the common mistakes to avoid. Achieving a great credit score is a marathon rather than a sprint. Like any marathon, there are hurdles along the way.
Here are some common missteps that can take a toll on your credit score:
● Late Payments and Defaults: Consistent delays or defaults on your EMI or credit card payments negatively impact your credit score. Anjali’s case justifies this scenario best. A working professional who often forgets to pay her credit card bill on time, this inconsistency in repayment became a setback for her, resulting in a low credit score.
● High Credit Utilisation: Regularly maxing out your credit limit can send red flags to lenders about your repayment capacity.
● Frequent Loan Applications: Regularly applying for loans or credit cards portrays you as credit hungry, which is not a positive signal to lenders.
● Ignoring Your Credit Report: Not periodically checking your credit report for errors or discrepancies can affect your score.
The Winning Strategy: How to Boost and Maintain Your Credit Score
Reaching the pinnacle of ‘best credit score’ is no small feat. With consistent effort and the right approach, borrowers can get there. The steps listed below make the task easy:
● Timely Bill Payments: Borrowers must pay their EMIs and credit card bills on time to keep themselves out of personal loan debt trap. A pattern of timely payments contributes positively to your credit score.
● Balancing Credit Utilisation: Keep your credit utilisation ratio under 30%. If the assigned credit limit is Rs 1,00,000, borrowers must spend no more than Rs 30,000.
● Rectify Credit Report Errors: Regularly review your credit report to ensure no errors. If you find any, report them to the respective credit bureau immediately.
● Maintain a Long Credit History: When handled responsibly, longer credit history portrays creditworthiness.
● Diversify Your Credit: A healthy mix of secured (like home loans) and unsecured loans (like credit cards) helps improve your credit score.
This piece must have helped you get the answers to my credit score and how it works.
Conclusion
In this maze of personal finance, achieving the best credit score isn’t a riddle anymore. It is a rewarding journey. You have learned about the significance of a great credit score, the pitfalls to avoid, and the proactive steps to take for improvement.