How To Rebuild Your Credit Score?
A credit score is one of the financial concepts that influence several other things, like getting a loan with favourable terms and conditions, getting a premium credit card, maintaining financial stability and more. Hence, it is paramount that you regularly check your credit score, i.e., at least once in three months, and maintain it in the ‘good’ or ‘high’ range.
Maintaining a good credit score requires discipline and smart financial habits. Even with a good credit history, your score may fluctuate based on financial decisions. If you do an online credit score check and notice that your credit score has dropped significantly over a period of time, you must focus on rebuilding it. In this regard, the following tips may be helpful. Read on!
Before we delve into tips for how to rebuild a credit score, let us first understand what exactly a credit score is and what a good credit score range is.
What is a credit score?
A credit report is essentially a numerical value ranging from 300-900 that reflects your creditworthiness. The higher your credit score, the closer it is to 900, the higher your creditworthiness, and vice versa.
The financial organisations in India, including banks, NBFCs (non-banking financial companies) and credit card issuers, consider the credit score of the loan and credit card applicants as one of the critical factors in determining their eligibility for the loan or credit card. Typically, if you have a high credit score, you can easily get the loan or credit card approval.
What is a good credit score range
The following table provides a clear understanding of how financial organisations categorise different credit score ranges.
| Very High Risk | High Risk | Medium Risk | Low risk | Very Low Risk |
|---|---|---|---|---|
| 300 - 399 | 400 - 577 | 578 - 644 | 645 - 693 | 694 - 900 |
How do you rebuild your credit score and achieve financial stability?
The key to rebuilding your credit score and a solid credit history is to be responsible with your finances and make prudent financial decisions.
• Review your credit report
If you notice a sudden drop in your credit score, you may be wondering how can I improve credit score. Firstly, you must understand the exact cause of the sudden drop in your credit score and then take appropriate measures.
To do this, you must proactively review your credit report and carefully examine your credit history. Nowadays, many online services offer free access to credit reports. Ensure that you review the reports for any errors or suspicious activities. If you spot any inaccuracies, such as a bill pending or a delay in EMI (equated monthly instalment) payment, you must immediately report this to the relevant credit bureau and have it corrected.
The errors in your credit report may be the reason why your credit score dropped, and once they are fixed, your score will rebound again.
• Pay your bills on time
When you talk about how to fix credit score, you cannot overlook the importance of making on-time payments; it is a sure-fire way to ensure that your credit score remains high and build a solid credit history.
To ensure that you pay all your bills on time, you may want to set an alarm or reminder for the due dates of credit card payments or loan EMIs. You may also consider automating the payment process by providing a standing instruction to your bank and asking them to debit a certain amount towards EMI or credit card bill payment on a specific day of the month.
This way, you can avoid payment delays as well as incurring a heavy penalty. Also, on-time payments will minimise the negative impact on your credit score.
• Keep your credit utilisation ratio low
Keeping your credit utilisation ratio low may be beneficial for your credit score and maintaining a strong credit history. The ratio essentially refers to the credit amount you have utilised against the maximum credit limit available to you.
While trying to rebuild your credit ratio, it is paramount that you use less than 30% of the available credit. This will reflect your responsible credit behaviour, and over time, your credit score may improve.
• Consider getting a secured credit card
Nowadays, credit is not a luxury item but a necessity. But, when you are on a mission to rebuild your credit score, it is advisable that you avoid applying for a traditional credit card and instead opt for a secured credit card.
As the name says it all, banks issue secured credit cards against the deposit you hold with them, and the credit limit of the card is usually equal to the deposit amount. This makes it a viable credit card option for you as you have a low credit score.
As you use this card and make regular payments, i.e., pay off the full amount each month, over a period, your credit score will automatically improve. So, when you are looking for ways on how to make credit score right, make sure to apply for a credit card that aligns with your credit requirements and current credit standing.
Conclusion
Rebuilding your credit score requires you to be consistent and patient. Review credit report carefully, understand the reason why your credit score dropped, pay all your bills on time, and keep the credit utilisation ratio low. All these will help you improve your credit score steadily, paving for a healthier financial future and access to better credit opportunities with favourable terms and conditions.
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