Did you know that your credit score plays a crucial role in determining your financial future? A good credit score can open doors to better loan offers, lower interest rates, and greater financial opportunities. On the other hand, a poor credit score can make it difficult to secure loans or credit cards. This is where CIBIL™, the Credit Information Bureau (India) Limited, comes into the picture. Established in 2000, it is the first credit information company in India that provides credit ratings to banks and helps them make informed lending decisions. Along with providing a rating it also helps you on how to maintain a good credit rating.
At Shriram Finance, we understand the significance of maintaining a good credit score. As a prominent non-banking financial company in India, we offer various credit solutions like loans for commercial vehicles, cars, homes, gold, personal finances, and small businesses. We also provide fixed deposits and recurring deposits to help you grow your savings. In this blog post, we will discuss simple steps on how to maintain a good credit score and achieve your financial goals.
Understanding Credit Scores and Reports
Before exploring the steps of maintaining a credit score, let's first learn what a credit score is. A credit score is a three-digit number ranging from 300 to 900 that measures your creditworthiness. It reflects your past borrowing behaviour and how well you have managed your debts. It also gives lenders an idea of how likely you are to repay borrowed money on time.
Along with the credit score, you also have a credit report which provides detailed information about your financial history. It includes factors such as current balances, loan amounts, payment histories, account types, and more. In India, there are many licensed credit bureaus responsible for preparing these reports based on data collected from various sources.
Steps to Maintaining Your Credit Score
With a solid grasp of credit scores and reports, let's delve into actions you can adopt to uphold a favourable credit score.
Pay Your Loans on Time, Every Time
One of the most crucial factors affecting your credit score is your payment history. Making timely payments for your loans and credit cards demonstrates responsible financial behaviour. On the other hand, missing or delaying payments can hurt your credit score. It's time to increase your credit score by taking a few proactive credit-improving steps.
For example, let's say you have a car loan with monthly instalments of ₹10,000. If you consistently make timely payments every month, it shows that you are managing your debt well and can be trusted with future loans. However, if you miss a payment or pay late, it not only affects your credit score but also sends a signal to lenders that you may not be reliable in repaying borrowed money.
Don't Get Close to Your Credit Limit
Credit utilisation is another significant factor that affects your credit limit. It refers to the percentage of available credit that you are currently using. Keeping your credit utilisation below 30% is considered ideal for maintaining a good credit score.
A Long Credit History Will Help Your Score
The age of your accounts also plays a role in determining your credit score. A longer credit history gives lenders more information about your borrowing habits and repayment patterns, allowing them to make informed decisions about granting loans.
For instance, let's consider two individuals applying for the same loan amount with similar income levels and payment histories. However, one person has a credit history of five years, while the other has only one year of credit history. The person with a longer credit history is more likely to receive favourable terms and conditions because they have demonstrated a longer period of responsible debt management. Maintain a good credit history to avail amazing loan benefits along with better interest rates.
Only Apply for Credit That You Need
Each time you apply for a loan or a new line of credit, it generates what is known as a hard inquiry on your credit report. Multiple inquiries can negatively impact your credit score, signalling to lenders that you may be credit-hungry or facing financial difficulties.
To avoid unnecessary inquiries and protect your credit score, only apply for credit when necessary. Before applying, assess your financial situation and determine if you genuinely need a loan or credit card. This way, you can minimise the number of hard inquiries on your report and maintain a healthier credit profile.
Don't Neglect to Pay Credit Card Bills
Credit card bills are another aspect that contributes to your overall credit score. It is important to pay these bills on time and in full every month to showcase responsible financial behaviour. Making only minimum payments can lead to higher interest charges and an ever-increasing debt burden.
By paying off the entire bill at once, you demonstrate good financial planning and take a step to improve your credit score.
Check Your Credit Score
The best way to maintain your credit standing is to regularly monitor your credit score is essential for maintaining good financial health. Check your credit score periodically through reliable sources like Shriram Finance, CRIF High Mark and CIBIL™ to stay informed about your credit standing and address any issues promptly.
Checking your own credit score does not have any negative impact on your credit score. It allows you to identify any discrepancies or incorrect information that may be negatively affecting your creditworthiness. By monitoring your credit score, you can take steps to improve it and ensure that you are in a strong position to secure loans or credit cards in the future.
Understand Credit Score Risk Factors
Apart from the steps mentioned above, other risk factors can impact your credit score. Defaults on loan payments, collections, bankruptcies, and other negative events can significantly lower your credit score and stay on your credit report for a certain period.
If you find yourself in such a situation, it is important to address these risk factors promptly. Seek professional assistance if needed and work towards resolving any outstanding debts or financial issues. Taking proactive steps to rectify past mistakes will help you maintain a good credit score and improve your overall financial well-being.
Conclusion
Maintaining a good credit score is crucial for achieving your financial goals and securing loans or credit cards on favourable terms. By following the simple steps outlined above, you can increase your chances of maintaining a healthy credit rating and improving your overall financial standing.
At Shriram Finance, we understand the importance of a good credit history when it comes to achieving financial success. We offer various credit solutions like loans for commercial vehicles, cars, homes, gold, personal finances, and small businesses. Additionally, we provide fixed deposits and recurring deposits to help you grow your savings while keeping a good credit score.
Remember to pay your bills on time, keep utilisation low, maintain a long credit history, apply for credit only when necessary, pay off credit card bills in full each month, monitor your credit score regularly, and address any risk factors promptly. By implementing these simple habits into your financial routine, you can keep a good credit score and pave the way for a brighter financial future with Shriram Finance by your side.
Frequently Asked Questions:
1. What are some simple steps to maintain a good credit score?
- Make timely payments for loans and credit cards.
- Keep your credit utilisation below 30%.
- Maintain a longer credit history by keeping old accounts open.
- Apply for new credit only when necessary and avoid unnecessary inquiries.
2. How can I monitor my credit progress?
To monitor your credit progress, you can:
- Check your credit report regularly from authorised credit bureaus like CIBIL™, Equifax, Experian, and High Mark Credit Information Services.
- You can also check your credit score through reputed NBFCs like Shriram Finance.
- Review the information in your credit report for accuracy and dispute any errors if necessary.
- Stay updated on your payment history, outstanding debts, and credit inquiries.
3. How much credit card debt is considered "too much"?
Having a high amount of credit card debt can negatively impact your credit score. It is generally advised to keep your credit card balances below 30% of your total available credit limit.
4. How long does negative information stay on my credit report?
Negative information such as late payments, defaults, or bankruptcy can stay on your credit report for different periods of time:
- Late payments: Typically stay on the report for up to 7 years.
- Defaults: Usually remain on the report for up to 7 years from the date of default.
- Bankruptcy: Can stay on the report for up to 10 years from the date of discharge.
Key Highlights:
- Making timely payments for loans and credit cards is crucial in maintaining a good credit score.
- Keeping your credit utilisation ratio below 30% shows responsible handling of credit.
- Maintaining a longer credit history by keeping old accounts open helps improve your overall score.
- Applying for new credit only when necessary and minimising unnecessary credit inquiries is recommended.
