How to Improve and Increase Your Credit Score to Get Easy Credit- Tips and Measures

Swapnil Ghosh
Nov 8 · 6 min read

In every country, there are different ‘Credit Rating Agencies’ who rate us on ‘how we manage our loans and repayments’. Usually, credit score ranges from 300 to 850 (varying country-wise), but the way to deal with the ratings is the same across continents.

Source- Economic Times
Credit Score in U.S ranges from 300–850

In case you have never taken a loan, your credit score will be Nil.

Never the less, it is important, as higher the score of an individual, the easier it is to get a loan and it helps in increasing his or her negotiation position as well, since many times, those with high ratings are offered loans at a comparatively cheaper rate of interest.

Apart from banks, insurance companies, telecom providers, landlords, digital financing platforms and many other third parties verify a person’s credit rating before engaging in any kind of commercial transaction or contract with them.

Much of the knowledge here is tried and tested. The purpose of this article is to provide you with enough information so that you can avoid mistakes which many commit in an unaware manner and end up hurting their borrowing capacity.

Ways to increase and improve credit ratings are-

A) Get a credit card

If you are just a beginner, start with applying for a credit card.

Though it comes with a burden of repayment in case you spend, one important fact worth mentioning is that unless you take credit, you won’t have a credit history.

I won’t suggest going on a splurge with the same but using the card with some planning will help you create a track record so that when you require a loan for any purpose, you will have a transaction report which will ease the process for you.

B) Pay your bills on time in full

Have your card? Repay on time. Be it a credit card, telephone bill, mortgage or any kind of loan, unless you make the repayment in an orderly and disciplined manner, the history of the transactions will ruin the present and future of your credit rating.

Every time you miss a payment on bill date or delay the same, it affects your score.

Also, try to make the repayment in full. Whenever you pay only the minimum required amount of the total debt, interest is charged on the total remaining amount, which increases your net payable amount. The credit companies love to keep you in this trap since they are earning interest. The only thing you are gaining is increased liability per cycle.

C) Maintain a credit utilization ratio

Suppose the credit limit granted to you is 5,00,000/- Rupees, then try to maintain a ratio of 40 to 60 meaning, you utilize only 40% of what is granted to you, which in this case, is 2,00,000/- Rupees. Though this feels like a restraining condition, it is better to be self-restrained than to be controlled by an external agency. When you utilize less, it not only helps you make the repayment in full but also aids in increasing your credit availability.

D) Ask for a higher credit limit

If your credit limit goes up and spending stays the same, your credit utilization ratio improves without any effort.

Call your card issuer or financer and ask him whether he can increase your limit without making a hard inquiry. (Hard inquiry decreases the credit score)

E) Don’t make too many applications within a short period

In case you require money, please do not apply for several loans at the same time. Every time you apply, the lenders you approached will make a hard enquiry to check your credit information and every hard enquiry will bring down your credit score by a few points.

Also, applying for too many loans, simultaneously, makes you appear as credit hungry and short of liquidity which invariably leads to them doubting your repayment capability.

F) Maintain a healthy credit mix

Always plan your credit portfolio to include secured loans (Home Loan, Auto Loan and as such) as well as unsecured loans (such as Personal Loan, Credit Cards), both of short and long tenure to build a good credit score. Too many unsecured loans may impart a negative view of you on your prospective lenders.

G) Do not close unused credit cards

Though you may want to cancel out the unused credit cards, they do no harm if no charge is needed to be paid on them. In case you have two credit cards but use only one, your credit utilization ratio is far better than what it would have been if you had only one.

To explain the same, imagine you have 2 cards with a credit limit of 2,00,000/- Rupees each, and your credit requirement is 1,50,000/- Rupees.

Your usage ratio would be 43.75 out of 100 per cent.

In another scenario, if you have only one card, and you use the same 1,50,000 Rupees out of 2,00,000 Rupees limit on the card, you have ended up splurging 87.5% of your available credit.

This is the reason for not to cut out old cards. But this neither should be the reason to go on accumulating cards. The last thing you want is to look like a savage credit hunter.

Calculations-

H) Monitor all co-signed, guaranteed and joint accounts monthly

In these type of accounts and loans which you are part of, you too are liable in case of defaults. You may not even know and your credit score may go down if the joint holder of your account is negligent. This could affect your credit-taking-capacity and you do not want someone to ruin something which you have worked hard for.

I) Monitor your score

Monitor your score at regular intervals (once in four months is good) to check for any kind of inconsistencies. This is called making a soft enquiry and this won’t negatively impact your credit score. This is important because many a time, credit rating agencies end up making a mistake in updating your credit records and there are scenarios when there may be miscommunication.

If you notice such a problem, get those rectified instantly by reporting it to them.

J) Be Patient

All of your previous loans and its record remain intact and visible on your report for significant years and as a result, there’s no exact way of getting rid of your past deeds. This doesn’t mean that if you’ve defaulted in past you will never get over it but it is always a better choice to maintain a healthy approach over a long period as a precaution.

And… Chill.

Swapnil Ghosh

Written by

Money is something which doesn’t just manifest by hard work but through system and management. ‘Personal Finance’ is my spere and I’ll help you rule.

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