Enhance Your Credit Score: 5 Essential Steps to Follow
A strong credit score is crucial for financial success, influencing everything from loan approvals to interest rates. Achieving a score of 800 or higher can unlock the best deals on loans and credit cards, while scores below 600 can severely limit options. Financial experts emphasize the importance of improving your credit profile and offer five actionable strategies to help individuals enhance their scores and secure better financial opportunities.
Timely Payments Are Key
The most significant factor in determining your credit score is your payment history. Missing payments or only making minimum payments can negatively impact your score, especially if you have a limited credit history. Experts recommend automating payments for loans and credit cards to ensure they are made on time. According to Satish Mehta, founder of Athena CredXpert, even a single missed payment can signal unreliability to lenders. While paying the minimum due may not immediately affect your score, the high interest rates associated with such payments can strain your finances in the long run. Establishing a habit of paying on time and in full is essential for maintaining a healthy credit profile.
Utilizing Secured Loans
For those struggling with a low credit score, secured loans can provide a pathway to rebuilding credit. These loans, which are backed by assets like fixed deposits or gold, are often easier to obtain and are reported to credit bureaus. Financial expert Raj Khosla, founder and managing director of MyMoneyMantra, suggests starting with small, manageable expenses and ensuring timely repayments. Consistent payments over six to nine months can help restore trust with lenders and improve your credit score. This approach allows individuals to gradually rebuild their creditworthiness without taking on excessive risk.
Managing Credit Utilization
Credit utilization, or the percentage of your available credit that you are using, plays a crucial role in your credit score. Experts recommend keeping this ratio below 30-40% to avoid being perceived as a risky borrower. To manage credit utilization effectively, spread your spending across multiple credit cards instead of maxing out one. However, be cautious about applying for too many new cards in a short period, as this can raise red flags with credit bureaus. Maintaining a balanced approach to credit usage is vital for sustaining a healthy credit score.
Handling Overdue Loans Wisely
If you find yourself with overdue payments, it is essential to approach the situation carefully. Taking out new loans to pay off old debts can lead to a cycle of debt that is difficult to escape. Satish Mehta warns that simply swapping one debt for another does not resolve the underlying issues. Instead, focus on clearing smaller, high-interest loans first. Seeking assistance from a credit counselor can also provide valuable guidance on structuring repayments and managing debt effectively. By addressing overdue payments strategically, individuals can work towards improving their overall financial health and credit standing.
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