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Five Steps to Gradually Fix Your Credit Score For Easy Access to Loans Here are a few ways you can fix a bad credit score and get back on the path toward better financial health

By Gaurav Gupta

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In today's digitally-driven lifestyle, the importance of having a good credit score cannot be stressed enough. It is the most important factors in your ability to get funds when required at a favourable rate and can be a potential dealmaker or deal-breaker. This 3-digit number defines the creditworthiness of individuals and helps them in getting access to mortgage, personal loans, car loans, or education loans. A low score indicates bad credit health and an irresponsible attitude towards handling one's finances, marking a borrower out as a risky bet to potential landlords, insurers, lenders, and employers.

But, if you have a low credit score, fear not! While building good credit cannot be done overnight, it is still possible to improve it. A credit score takes into account each and every aspect of one's financial behaviour from the past, and not just the present actions. But here are a few ways you can fix a bad credit score and get back on the path towards better financial health:

Check Your Credit Report and Identify The Score-Killers

To start with, analyse your credit report. This will help you identify the factors that are hurting your credit score. It will also help you in creating and rolling out an action plan, as well as to gauge how these interventions will impact your score over time.

Wrap up Your Late Payments and Outstanding Bills

If you have any outstanding loan EMIs or credit card bills, try to pay them off immediately. Payment history is one of the factors determining your credit score. If your financial history screams delayed payments, the scores are bound to be low. To be on a safer side, activate your payment alert and auto-debit facility to ensure that credit bills or EMIs are paid off as per the stipulated timeline. Also, always try to pay off the maximum amount due on your credit card to keep the outstanding amount low.

  • Credit Utilization

Credit utilization is yet another aspect influencing your credit score. The amount of credit you are using against the amount that is available to you determines your dependency on it. It is recommended to utilize only up to 30per cent of the available credit. Even if you are using multiple credit cards, do not go beyond this percentage on any single card and try to keep the utilization lower on the rest of the cards.

  • Do Not Close Your Old Running Credit Card Accounts

A consistent repayment track record on an old running credit card gives an additional comfort to your lender in addition to a good credit score. If you plan to close any of your credit card accounts, avoid closing your older cards. In case you notice any of your loan accounts and credit cards missing from your credit report, contact your bank to get them reported to the bureau. Records of loans with a positive track-record are always welcome by lenders as an affirmation of your creditworthiness.

  • Plan your credit

Low credit scores are the result of badly planned finances. Little do you realise, that applying for multiple credit cards and loans, can result in a risk of pulling down your credit score and reduce your chances of getting a loan. If your loan application is rejected due to low credit score, try to work on a credit score improvement plan before applying for a loan again. Negative entries in the past six months have a more significant impact on your credit score. So, if you ensure timely repayments on your running accounts for a minimum period of 4-6 months before applying for a loan again, you may be able to improve your chances of getting a loan. You can also take a small amount secured loan like a gold loan or a secured credit card and demonstrate your credit discipline by timely payment on these loans. Last, but not the least, never borrow more than you need and can repay. Always, estimate your budget and spending over the loan tenure to ensure that you would have adequate inflows to meet your loan repayment commitments.

Creating and maintaining a solid credit history is more like a marathon than a 100-metre dash, and needs some hard work and perseverance. It is also important to understand that improving a credit score is a long-term affair but worth every effort. Imagine a life where you don't have to worry about your chances of getting credit when required to meet your personal or business expenses. Like it is important to check your health fitness regularly, it is equally important to check your financial fitness regularly to avoid stress and discomfort in your life.

Gaurav Gupta

Co-founder and CEO, MyLoanCare.in

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