Ways of using credit cards to raise your credit score?
Having a good credit score is crucial for maintaining a healthy financial status as it provides a quick snapshot to lenders about how responsibly you handle credit. A higher credit score not only increases the likelihood of being approved for new loans or lines of credit but can also lead to lower interest rates on borrowed funds. In short, a good credit score can significantly impact your ability to access credit and borrow money at favorable terms.
Strategies for Improving Your Credit Score
Fortunately, there are various measures that
you can implement to enhance your credit score. While some of these strategies
may require several weeks or months to yield noticeable results, others can be
accomplished in a single day and may result in rapid credit improvement.
Analyze your credit reports
To improve your credit score, it is crucial to understand the factors that affect it positively or negatively. Checking your credit history is a good step in this process.
To begin, obtain a copy of your credit report from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. After that, carefully analyze each report to identify the elements that are helping or harming your credit score.
Several factors can positively impact your credit score, including a track record of timely payments, maintaining low balances on your credit cards, having a mix of various credit card and loan accounts, holding older credit accounts, and avoiding excessive inquiries for new credit. Conversely, late or missed payments, high credit card balances, collections, and judgments can significantly lower your credit score.
Tip: You can obtain a complimentary copy of your credit reports from all
three credit bureaus once per year. To access them, visit
AnnualCreditReport.com.
Take control of your bill
payments
More than 90% of top lenders use CIBIL scores
to make credit decisions. These factors are categorized into five distinct
components:
- Payment
history (35%)
- Credit usage
(30%)
- Age of
credit accounts (15%)
- Credit mix
(10%)
- New credit inquiries (10%)
As you can see, payment history has the most
significant impact on your credit score. This is why having fully paid-off
debts, such as your previous student loans, on your credit report can be
advantageous. One way to positively impact your credit score is by responsibly
and consistently making on-time debt payments.
Ensure that you don’t use more
than 30% of your credit limit
Credit utilization refers to the proportion of your credit limit that is being utilized at any given time. It's the second most significant factor that influences your CIBIL score, right after payment history.
To keep your credit utilization under control,
the best approach is to pay off your credit card balances completely each
month. If you cannot always do that, a general guideline is to keep your total
outstanding balance at or below 30% of your total credit limit. After that, you
can aim to decrease it further to 10% or less, which is considered an excellent
utilization rate for improving your credit score.
Keep track of your credit status
Using a credit monitoring service is a
convenient method to track how your credit score evolves. Numerous free
services will monitor any changes in your credit report, such as closing an
account or opening a new one. Additionally, these services usually provide you
with access to at least one of your credit scores from the three major credit
bureaus (Equifax, Experian, and TransUnion), which are updated monthly.
Conclusion
Having a good credit score is important,
especially, if you’re considering applying for a loan or financing a
significant like a new car or a house, or if you want to qualify for premium
rewards cards. Improving your credit score is a gradual process that may take
several weeks or even months to show noticeable results once you begin
implementing strategies to improve it.
Read More: How to Maximize the Benefits of A Low-Interest Credit Card?
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