How To Improve Credit Score - Improve Credit Score

Why Does Your Credit Score Matter?

A credit score is an all-powerful force in the strange credit world. It helps lenders determine your creditworthiness - how likely you are to repay your debt on time. Good credit is also vital in deciding your odds of approval for a loan at a lower interest rate. A low interest rate can make a notable difference to your savings.

Every time you set a financial goal, your credit score is likely to be a part of that financing picture. However, credit scores are not the only parameters lenders will look for.

What Are the Factors That Go into a Good Credit Score?

The fundamental factors that go into calculating a credit score are:

• Payment history, which accounts for 35% of your credit score
• Credit utilization, which makes up 30% of your credit score
• Credit age is used to calculate 15% of the score
• Mix of credit accounts makes up 10% of the score
• Recent credit inquiries affect 10% of a credit score
  

Payment History

Late and missed payments can sink your credit score as they account for a significant portion of it.

When determining your score, the scoring model focuses on:

• if you have recently missed a payment, or were late to pay
• how many accounts you were late to pay
• how many payments you missed or made late on each account
  

To inch closer to a good credit score, improve your payment behavior and develop a clean payment history.

Credit Utilization

Your credit utilization ratio is the amount of credit you use against your total credit limit. So, if your credit limit is Rs 30,000, with a balance of Rs 12,000, your credit utilization ratio is 40%.

Maxing out on your credit limit will raise your credit utilization ratio drastically, which will bring down your credit score likewise. A good credit score requires the credit utilization ratio to be less than 30%.

Credit Age

Your credit age details for how long you have been using credit. To be precise, it's the average age of all accounts on your credit report. To establish a good credit score, you need a minimum of one line of credit on your credit report that is at least six months old.
Mix of Accounts

Account mix states the number of installment accounts and revolving accounts you have.

• Installment accounts are loans, such as mortgages, auto loans, or personal loans, with a fixed monthly payment for a specific duration.
  
  
• Revolving accounts consist of credit cards and lines of credit with an overall credit limit that you can charge against.
  

A right mix of these accounts can push your credit score forward.

Credit Inquiries

If you apply for way too many lines of credit all at the same time, your credit score might have to endure a hard blow. Such applications result in hard inquiries, which can taint your credit report for up to 7 years. Although hard inquiries only make up 10%, to make the most out of it, try and minimize credit inquiries.

Now, you may have another question.

How Do I Improve My Credit Score?

If you have reviewed your credit report and discovered that it isn't quite where you thought it'd be, then you're not alone. Start by taking control of your financial future by improving your credit score.

• Pay bills your on time - Repaying your debt timely will help you build a clean payment history. It will boost your credit score as it has the largest impact of all the factors in your credit score.
  
  
• Use credit responsibly - Always try to keep your credit card balances below your credit limits, ideally under 30%. Credit utilization ratio has the second-biggest influence on your credit score.
  
  
• Don't close all your old accounts - Keeping your older accounts open necessarily raises your average credit age. It will help you improve your credit score and bring down your credit utilization rate. Be careful when you cancel credit cards.
  
  
• Don't apply all at once - Avoid applying for several credit applications within a short time frame. Such applications yield hard inquiries which can cause a small, temporary dip in your score.
  
  
• Regularly monitor - You must track your credit reports to look for errors in your credit report.

Credit Card Limit Increase - How To Increase Credit Card Limit

Well, the drop in your credit score could be the result of several reasons; one of them being a high credit utilization rate. If that is in fact the case, increasing your credit limit can definitely help push your credit score forward.

What's a Credit Limit?

The credit limit is the absolute maximum outstanding amount that your credit card issuer lets you borrow. Every time you purchase with your credit card, the purchase amount is added to your credit card balance, which cannot exceed the credit limit. Keeping your expenses well within the credit limit is vital both to avoid a debt trap and to build a good credit score.
Why Would You Want a High Credit Limit?

There are three primary reasons why you may want an increase in your credit limit:

To obtain more credit for making purchases - Your existing credit limit might be too low to cover a planned purchase or an expensive gift. A higher credit limit will help you to make more purchases easily, thereby allowing you to reap the benefits of credit card reward points.

To get more credit during an emergency -  An emergency in the form of anything - last-minute plane tickets home to car repairs - might knock on your door at any hour. Although you might want to use your emergency fund for every rainy day, a credit card can come in handy as well. The higher the credit limit, the more funds you can access to support yourself through a difficult situation.

To lower your credit utilization rate - Your credit score is profoundly affected by the amount owed (especially when it goes above 30% of the credit limit). The amount that you owe determines your 'credit utilization rate.' Hence, an increase in your credit limit can surely boost your credit score and take care of your financial health.

How to Request an Increase in Credit Limit

If your lender is not willing to increase your credit limit, proceed with caution. The strategy of asking upfront can backfire and eventually become the reason behind the dip in your credit score. So, plan well before you request for a higher credit limit.

The reason why a request can hurt your credit score is that the request will lead to a hard inquiry. A number of hard inquiries on your credit report might make you look desperate for credit, thereby landing a blow to your credit score. With that said, sometimes it also makes sense to request a credit limit increase. Although your credit scores might dip temporarily, it will eventually improve if you have a plan in place for prompt repayment.

How to Prepare Yourself for It

Here are a few things that you should keep in mind:

Timing is key - It is always a good idea to wait until you've got a good credit track record or a stable income. As odd as it may sound, the best time to ask for more room in your credit line is when you need it the least.

Keeping your credit score stable -  As discussed above, a request to raise your credit limit could initiate a series of hard inquiries on your credit report. So, avoid applying for many lines of credit all at the same time.

Evaluate the reasons before applying - Make sure that you are not asking for a higher credit limit on just a whim or impulse. The best reason to have is that you're trying to keep your credit usage low relative to your credit limit.

What Are the Dangers of Maxing Out on Your Credit Limit?

Your Credit Score Can Plummet - A higher credit limit can tempt you to splurge, resulting in a higher credit utilization rate. Maxing out on your credit card/(s) is much worse, and can totally derail your personal finance as your credit score drops considerably.

Lenders Might Not Approve of It - Maxing out on your credit limit could put you at risk of lenders considering you irresponsible. It might just start with rejection on your loan application, and could extend well beyond. So, try to keep your credit card expenses well under check.

You Might Fall into a Debt-Trap - Maxing out on your credit card can put you a step closer to deep debt. Although you may plan to repay the balance soon, it could take years to repay, which often leads to a vicious cycle of interest accumulation and repayment.

Good Credit Score - How To Build a Good Credit Score

 Building a positive credit history is a time-consuming process. There isn't any quick solution or an easy way out. It takes patience and dedication, and several factors determine your credit score outstanding balance. The age of your credit history, your payment history, credit utilization rate, etc. are all taken into account by credit bureaus while calculating your credit score.

Each of these factors works uniquely, and it might be somewhat tricky for an amateur to understand the dynamics of credit. Read this article to discover effective ways of building your credit score.
Factors Affecting Credit Score

Here is a list of the factors that affect your credit score:
Timely Payments

Always repay the owed amount on time. Try your best to pay the amount in full. Your creditor might ask you to repay a portion of the total owed amount within the due date, but you must know that an APR will be imposed on the remaining amount. Credit card interests are quite high, and if you keep your payments pending, you might end up paying a lot more than you had initially borrowed. Pay on time, and your credit score is bound to rise.
Outstanding Debts

If you have an outstanding balance, pay it off as soon as you can. Stalling will make it a considerable burden, as outstanding amounts attract a high APR. Settling these pending balances will ensure a slow but gradual increase in your credit score.
Age of Credit History

This is the record of how long you have been managing credit - the longer, the better. You will be considered more worthy of getting a loan if you can prove that you have been maintaining your credits responsibly for an extended period. Hence, avoid closing your oldest credit card account; doing so could drastically bring down your credit score.
Credit Mix

A variety of accounts is always preferable, as it shows that you have been trusted with credit by other lenders. It presents you as a responsible borrower who has been considered creditworthy. This in turn boosts your credit score.

Credit Card Utilization

You shouldn't exceed 30% of your available credit limit. A low credit utilization rate indicates that you spend responsibly. It also suggests that you are more likely to repay the loan on time as you limit your expenses to your affordability. A low credit utilization rate assures a high credit score.
Building Credit

Now that you know about the various determinants of credit score, let me tell you how to improve it. You might be a beginner in need of credit score or an experienced spender with a messed up credit history. Don’t fret. Don’t get all worked up. There’s a solution to every problem; you can conquer your challenges with patience and a little help. Here you go:
Building Credit for the First Time

Let's start with the obvious: you must have at least one credit account if you are planning on building a credit history. If it is your first credit account, here are the options you've got:

    Secured credit card - it is a credit account whose credit limit is attached to your savings account. It serves as a security measure for the bank in case you are unable to repay the balance.

    Loan - You could take a small loan. If you aren’t eligible for it, get it cosigned by an acquaintance with a good credit score. However, the cosigner would be entering a serious obligation by doing so.

    Authorized user – If an acquaintance with a good credit history is willing to add you as an authorized user on their credit card, your credit score could largely benefit from him.

Once you establish a credit history for yourself, you would be eligible for starting your line of credit. Henceforth you need to be extremely careful so that you pay your dues on time always. If you have a credit card, you must keep your credit balance as low as possible, not exceeding 30% of the credit limit. Repay the balance in full every month. It is essential that you establish a pattern of responsible borrowing habits.

It might take three to six months of activity to calculate a credit score. Make small purchases every month and repay it in full within the due date. Show responsible credit habits, and it will help you build a good credit score.
Rebuilding a Damaged Credit Score

Damaged credit history can be hard to repair; however, it isn't impossible. The time and ways of improving a troubled credit history largely depend upon the severity of your situation. One can recover from the damage of a couple of missed or late payments in a few months, but the crisis of a substantial debt might take years to emerge from. The steps mentioned below can help you deal with both:

    Clear all debts: The very first thing that you need to do for rebuilding a damaged credit is to clear all your debts. As long as you have debt, your credit cannot be repaired. Check out what debts you already have and pay those back as soon as possible within the stipulated time.

    Catch up on late payments: In case you have any late fees, pay them as soon as possible. Late payments are never good for your credit score.

    Pay on time: This one is significant. Lenders forward your money because they expect and trust you to pay them back on time. When you are unable to do that, it reflects poorly on your credit report. As a result, lenders in the future may not want to give you any loans. Thus, you need to pay interest on time.

    Reduce your expenses: keep a low credit balance - It is essential to reduce your expenses as much as possible until your debts are paid back. It makes no sense to buy expensive things when you have debts.

    Reduce your credit utilization rate: The credit utilization rate is equal to how much money you owe divided by your credit limit. The lesser money you owe, the better it will reflect on your credit report. In time, you shall be able to take care of your damaged credit.

What is a Good credit score ? - Credit Score Dropped for no reason

Lenders use your credit score to evaluate whether you will repay your debt responsibly or not. A high credit score would make you a worthy candidate in the eyes of lenders, whereas a low credit score could easily hinder your chances of getting credit. Credit bureaus like Equifax, Experian, and TransUnion assess your entire financial history and use a fact-based mathematical algorithm to calculate your credit score.

A good credit score can open up a lot of possibilities. It can help you to qualify for the best APR when you borrow money, and it can influence lenders to consider you creditworthy. Landlords, teleservice providers, and even cable companies consider your credit score when you apply with them for a product or service. You must know how you can increase your credit score and improve your credit health. Go through our tips to boost your credit score.

Why Did My Credit Score Drop?

There can be a few surprising but very pertinent reasons for a sudden fall in your credit score. Let us dig deep into them.

Old and Inactive Accounts

Have you ever found an interesting promotional offer in a shopping mall or a retail outlet and applied for a credit card? Well, I did at some point in time. And being my ever-forgetful self, I had conveniently forgotten about it.

An inactive account is of no profit to a lender, and a lender can automatically close it without giving you notice. Also, there’s no standard law to decide on how long your account needs to be inactive for before the lender can automatically deactivate it.

The solution to this problem? Well, I have learned my lesson, and so I have set up my internet bill to be auto-deducted every month from another one of my long-forgotten credit cards. You could do the same. Remember to set up auto-pay so that you don’t miss a single payment.

A New Hard Inquiry

My mobile phone connection was pathetic, and I had decided to switch over to a different teleservice provider. A gentleman from the new phone company visited my house to get all the paperwork done. There were a handful of forms to be filled, read, and signed. As I was running late, I had blindly signed wherever the person asked me to. Unknowingly, I had permitted the company to conduct a credit check to ensure that I have the financial capability to afford their services. In short, a hard inquiry was made without my knowledge.

Although you haven’t applied for a loan or a credit card recently, you might have undergone similar minor changes in your lifestyle that resulted in a hard inquiry. You might have inadvertently permitted your internet service provider, cable company, teleservice provider, and even your landlord to conduct a hard inquiry on your credit report. Upgrading your credit card or applying for an increase in credit limit can also result in a hard inquiry.

The solution to this problem? I have become super vigilant. Now I read documents before signing on them; additionally, I always ask a service provider or a lender if the transaction involves a hard inquiry. I keep a close eye on my mymoneykarma account and ensure that all hard inquiries are made with my permission. If you find an unauthorized hard inquiry, it could be fraudulent activity, and you must take action immediately.

Paying off a Loan

This one was my strangest finding. That feeling of satisfaction and relaxation when you finally settle a loan isn’t relaxation in the financial world. You need to have a variety of accounts for maintaining a good credit score. If you pay off a loan, the loan account is closed, and you lose an account. Your credit score drops inevitably.

It is better to have different types of accounts running. Keep a mix of credit accounts and loans if you want to maintain a consistent record of credit score. It indicates that you responsibly manage your finances. Lenders thus consider you to be a creditworthy candidate.

The solution to this problem? Well, it is not a great worry. Paying off a loan might reduce your credit score at the moment, but it also proves that you’re capable of repaying loans and makes it easier to get approval for loans in the future.

Being an Authorized User of a Delinquent Account :

A few years ago, my grandfather had added me as an authorized user(second account holder) of one of his accounts to help me build my credit score. Unfortunately, my old and forgetful grandfather missed a payment. Since I am an authorized user, credit bureaus include that account in my credit report although I never actually use it.

There can be ups and downs of being an authorized user. If the primary account holder pays the bills responsibly, you benefit from the account. If the account holder misses payments, it brings down your credit score as well.

A solution to this problem? You could consider getting yourself removed from the account in case the account holder is a major payment defaulter. However, if the concerned account is your oldest account as per your credit report, removing it can reduce your credit score considerably. Think well before taking a step.

What is good Credit Score ? - 4 tips for good credit score

Fix Your Credit Utilization Ratio

You should keep your credit utilization ratio within 30%. If you notice that your expenses are exceeding 30% of your credit limit, your credit scores will inevitably drop. Consider increasing your credit limit in such a situation.

A higher credit limit automatically brings down your credit utilization rate, provided that your expenditure or credit balance remains constant.

You may call your credit card issuing company and request for an increase in the credit limit or make an application online.

You could also get another credit card for the same purpose. However, increasing your credit limit isn't a piece of cake, and you might have to go through a rough road.

Once you successfully manage to improve your credit limit, spend carefully - your expenses must not increase.

This will balance out your credit utilization rate, and a low utilization rate boosts the credit score.
Don’t Apply for Too Many Credits Simultaneously

Hard inquiries deduct points from your credit score. If you apply for too many lines of credit at a time, each will amount to a hard inquiry.

These hard inquiries remain on your credit report for quite some time. Many hard inquiries at a time will not only reduce your credit score but will also make you seem quite desperate for cash.

Hence, lenders will not be able to trust you. So whenever you apply for credit cards, spread the applications apart over a long period.