1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
A credit score is one of the essential components that banks and other financial institutions consider before approving any form of credit. It may be surprising for you to know that credit scores can vary when furnished from different credit bureaus, because every card issuer may not provide data to all the bureaus. The three main credit bureaus that offer credit scores are Equifax, Experian, and TransUnion.
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A credit score is determined based on several aspects, which we are going to discuss further.
Types of accounts
Used credit vs. available credit
Length of credit history
Let’s now break down these factors for a better understanding.
While calculating the credit score, the credit bureaus check the type of credit accounts, such as multiple credit cards (travel, dining, shopping) or loans( education, auto, home), that you currently have. This is to determine your ability to manage multiple accounts. Opening new accounts may affect other aspects of credit score like the length of credit history, the number of credit accounts, amounts owed, etc.
Your used credit balance vs. available limit determines the credit utilization ratio, which helps banks assess your level of responsibility towards credit usage. If your credit utilization remains below 30%, your credit score is likely to stay high. However, if all of your credit cards are maxed out, rest assured that your credit score will slump by a few hundred.
Your payment history includes that of credit cards, EMIs, and delinquent accounts (if any). If you have frequently been a defaulter of payments, no lender will trust you, and it will impact your credit score considerably. But, if you have been a disciplined credit payer, and repay either more than the minimum due or the entire amount on time, then you have nothing to worry about.
Hard inquiries occur when lenders check your credit score in response to a loan or credit card application. A large number of hard inquiries at once can drastically impact your credit score. However, if you are seeking a new car loan and personal loan at the same time, the multiple inquiries can generally be counted as one for a given period. That period may vary depending on the credit scoring model, but typically it is from 14 to 45 days.
Note: Credit score calculations don’t consider requests that a lender makes for a preapproved loan offer or an existing credit account. Checking your credit report also doesn’t affect credit scores, as it comes under soft inquiries.
If you have been maintaining a positive credit history for a long time, your chances of getting a new loan or credit card become higher. The credit report is a compilation of your credit history and must contain at least one account that is active from the last six months to generate a credit score. Don’t close your oldest credit card/account, as doing so can harm your credit score by bringing down the average credit age.
Pay your bills on time. Set an auto-debit system if you tend to forget the due date.
Don’t burden yourself with too many credit accounts at a time.
Don’t let lenders think that you are credit hungry by maxing out on your credit cards.
Monitor your co-signed or joined accounts regularly. Even if you are a responsible credit payer, your partner might miss some payments.
Try to pull your credit report from all the bureaus to identify the difference, at least once a year.
Also, tracking your credit report quarterly will ensure that it is error-free. In case you are thinking about the fee that you may need to access your credit report multiple times, here is the solution - check your credit score for FREE at mymoneykarma.
A good credit score lies within the range of 700-900. Hence, from the very beginning, taking care of all the factors that are considered for credit score calculation will ensure that your credit remains in good shape. However, if the health of credit has already been damaged, you can either start repairing it on your own or approach mymoneykarma for assistance. We are here to help you.