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Business
04 Feb 2019

#FinancialBytes: How to maintain a good credit score?

Tips to maintain a good credit score

Credit score has today become one of the most important factors for evaluating an individual's creditworthiness and financial health.

It shows an individual's credit behavior and indicates how likely they're to use credit responsibly.

It acts as proof to lenders of how well someone has managed their finances. So, maintaining a good is necessary.

Here are some tips to maintain a good credit score.

In context

Tips to maintain a good credit score
Know what credit score is to maintain a good one

#1

Know what credit score is to maintain a good one

For maintaining a good credit score, one must know what credit score is to easily understand what is good for it.

This score, a numerical expression, is based on one's "credit report" prepared/maintained by credit bureaus; individuals must check their credit reports regularly to identify and correct their mistakes.

It is crucial for getting approvals for loans, credit cards, or other credit requests.

#2

Keep credit balance low; avoid taking too many credit cards

While credit cards can boost credit score, maintaining too many cards could be a hassle that can affect credit score.

Also, defaulting on credit card payments and high usage of credit card limit (indicates the individual's credit hungry behavior) is bad.

One should avoid using credit cards to withdraw cash as they are considered "cash advances" that hamper credit score in the longer run.

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It is important to pay bills on time

#3

It is important to pay bills on time

Paying all bills, including credit card bills, on time is essential for a good credit score.

After a person takes a loan/credit card, the bank/lender periodically reports the individual's credit activities to credit information companies or bureaus that collect information and maintain "credit reports".

So, the unpaid bills or dues could end up on one's credit report and will affect the individual's credit score.

#4: Managing debt wisely is necessary for good credit score

Outstanding credit card balance isn't the only factor that affects one's credit score. Loan account balances, lines of credit, and other kinds of debt can impact the score. Too much debt can reduce the credit score. It is important to reduce and manage debt wisely.

#5

Be careful while taking loans; avoid making several credit inquiries

It is important to be cautious while taking new loans. Individuals must borrow only when it is absolutely needed and borrowing more than what they need is bad.

They should also limit their applications for new credit. Making too many credit inquiries, for loans or credit cards, could impact one's credit score negatively, especially if applications are rejected; rejections are bad for credit score.

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Most asked questions

What is a credit report?

Which credit information companies are present in India?

Why is high usage of credit limit bad?

What are some credit card mistakes to avoid?

More questions

What is a credit report?

Asked on 04-02-2019 by Muhammad Rodrigues

Answered by NewsBytes

Credit score, which represents one's ability to repay, is crucial for getting approvals for loans, credit cards, or other credit requests. This score is based on one's "credit report" prepared and maintained by credit bureaus. After a person takes a loan/credit card, the bank/lender periodically reports the individual's credit activities to credit information companies or bureaus that collect information and maintain "credit reports".

Which credit information companies are present in India?

Asked on 04-02-2019 by Ananya Dasgupta

Answered by NewsBytes

In India, there are four credit information companies (CICs) approved by the Reserve Bank of India - TransUnion CIBIL (Credit Information Bureau (India) Limited), Experian, Equifax, and CRIF HighMark. CIBIL is the oldest and most prominent credit bureau in the country that has been operational since 2000. The other three CICs were later issued licenses to operate by the central bank in 2010.

Why is high usage of credit limit bad?

Asked on 04-02-2019 by Pranav Bhatnagar

Answered by NewsBytes

High usage of credit card limit results in high credit utilization ratio, which is bad for the cardholder's credit score. Credit utilization ratio is the percentage of the total available credit currently being used. Credit reporting agencies use this ratio while calculating an individual's credit score. Higher credit utilization ratio indicates the borrower's credit hungry behavior, which impacts the credit score.

What are some credit card mistakes to avoid?

Asked on 04-02-2019 by Aadhya Tata

Answered by NewsBytes

If not used wisely, credit cards can be a huge burden. Here are some mistakes to avoid: Having too many credit cards; they increase expenditure. Paying only minimum due amount instead of focusing on clearing the outstanding balance. Defaulting on bill payment and high credit utilization. Withdrawing cash using credit card; it attracts very high interest. Ignoring monthly statement and blindly pay the bill.

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