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Business
05 Feb 2019

#FinancialBytes: Is your credit-score bad? Here's how to improve it

5 best tips to improve bad credit score

Credit score has become an important factor in our financial lives today. A bad credit score can be a headache as it makes it difficult to access credit.

Maintaining a good credit score, which represents an individual's creditworthiness, is necessary to qualify for loans and credit cards.

So, if your credit score is bad, here are some tips for you to improve it.

In context

5 best tips to improve bad credit score
Keep credit card balances low, decrease your debt

#1

Keep credit card balances low, decrease your debt

One of the first steps toward improving a bad credit score should be clearing off the outstanding credit card dues and decreasing one's debt.

One must plan in such a way that they can clear off credit balances and pay loan EMIs by the due date.

So, it is important to pay off debt and keep one's credit balances low for improving credit score.

#2

Use old credit cards; getting new unsecured cards could help

Some people believe that unused, old credit cards should be deactivated to improve credit rating.

However, it's a misconception because some experts say good credit card accounts, especially old ones, which are well-managed and have low outstanding amounts are good for credit score.

Also, individuals with bad scores can improve it by getting secured credit cards against fixed deposits and repaying balances on time.

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#3: Check your credit report for errors

Those with a bad credit score can also improve it by reporting any errors in credit report, which might decrease their score. They should obtain their credit report and check for errors/inaccuracies that drag their score down; they should get them rectified to improve score.

It is important to decrease credit limit utilization

#4

It is important to decrease credit limit utilization

Another effective solution to improve a bad credit score is to limit/decrease one's credit card limit utilization to 30-50%.

High usage of credit limit results in high credit utilization ratio, which is bad for the credit score.

Credit reporting agencies use this ratio while calculating an individual's credit score. Higher credit utilization ratio indicates borrower's credit hungry behavior, which negatively impacts the credit score.

#5: Replace bad credit habits with good; pay outstanding bills

To improve a bad credit score, one must replace bad credit habits with good ones. They must stay away from old credit-damaging spending habits and build a good score. Keeping a check on spending behavior and paying all outstanding amounts in time would improve score.

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Most asked questions

What is a credit report?

What are the advantages of having a good credit score?

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 05-02-2019 by Arjun Mukopadhyay

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".

What are the advantages of having a good credit score?

Asked on 05-02-2019 by Hansika Rodrigues

Answered by NewsBytes

Individuals having good credit scores can enjoy various benefits. They may have an advantage over others while availing credit from lenders such as faster loan sanctioning, lower interest rates, prepayment charges and processing fee waivers, and ease of getting new credit cards.

Why is high usage of credit limit bad?

Asked on 05-02-2019 by Pari Sengupta

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 05-02-2019 by Sai Banerjee

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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