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Everyday Money: 4 Ways to Improve Your Credit Score Several parameters determine your credit score. Follow these steps to ensure that your credit score remains healthy

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Importance of a good credit score cannot be overstated. It not only increases the chances of your loan application getting approved but can also get you a lower rate of interest on the loan. A score of 790 and above is considered to be excellent and can lower your interest rate by 40-50 basis points. But how can you build a good credit score?

Related Read: Why Your Credit Score Matters

Credit score typically depends on your loan repayment history, outstanding debt, number of active loan accounts and frequency of loan applications. Check your credit score on one of the four credit bureaus-- Experian, CIBIL, CRIF and Equifax—and understand which factors are affecting it. Then make regular conscious efforts towards achieving a healthy credit score.

Here is what you should do:

Don't miss out on EMIs

Paying your loan installments and credit card bills on time is the most important step to maintaining a healthy credit score. Lenders rely on repayment history to gauge your likelihood to pay loans in the future. Late payments or rolling over outstanding balance can negatively affect your credit score.

Take note that now even bill payment history can influence our credit score. Be sure to pay your phone, electricity and other utilities bills on time. An easy way to ensure this is by making all the bill payments automated.

Pay attention to credit utilisation ratio

Credit utilisation is the ratio of your outstanding credit card balance to the total credit limit. For instance, if your balance is Rs 20,000 on a credit limit of Rs 50,000, your credit utilisation ration is 40%.

High utilisation hints at excessive reliance on credit and can hurt your credit report. If you swipe your credit card for every expense, it is likely that you are clocking a high credit utilisation ratio every month.

Don't apply for too many loans

Applying for too many loans for every small need also reflects badly on your credit report. This is especially true for credit card applications. It makes you look desperate for credit with limited resources to payback.

Keep old cards active

One smart way of to boost your credit score is by preserving old credit cards that you don't use anymore instead of discontinuing them. Lenders prefer to see a longer history of credit and old cards serve that purpose. Average age of your repayment history builds your credit score and hence, older cards give your report a longer timeline. However, ensure that those cards are not costing you in annual fees.

Another benefit is that it will help with your credit utilisation ratio as you will have a higher credit limit but no outstanding balance.


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