How To Improve Your Credit Score

These days most of us avail loans to buy a house, set up a business, or buy a car. Many students take loans to further their education. How soon the loan is sanctioned, the rate of interest, and the amount sanctioned will all depend on your credit score which is based on your credit report. People with scores of 700 and more are the beneficiaries of lower interest rates and quick sanctions. Imagine if your score is greater than 700 and another person has a score of 698 then the person with score 698 will have to pay interest that is higher by one-half percentage point. And, this means over a year a person with a lower score will pay USD 22,000 and more as interest on a loan of say USD 183,000.

A credit score takes into consideration: payment history, current earnings, current debt, length of credit history, types of credit utilized, and your new credit. If two or more members of your family are earning then apply for a loan jointly.

Your credit score is usually based on the answers to these questions:

1. Do you pay your bills on time?
The answer to this question is very important. If you have paid bills late, have had an account referred to a collection agency, or have ever declared bankruptcy, this history will show up in your credit report.

2. What is your outstanding debt?
Many scoring models compare the amount of debt you have and your credit limits. If the amount you owe is close to your credit limit, it is likely to have a negative effect on your score.

3. How long is your credit history?
A short credit history may have a negative effect on your score, but a short history can be offset by other factors, such as timely payments and low balances.

4. Have you applied for new credit recently?
If you have applied for too many new accounts recently that may negatively affect your score. However, if you request a copy of your own credit report, or creditors are monitoring your account or looking at credit reports to make prescreened credit offers, these inquiries about your credit history are not counted as applications for credit.

5. How many and what types of credit accounts do you have?
Many credit-scoring models consider the number and type of credit accounts you have. A mix of installment loans and credit cards may improve your score. However, too many finance company accounts or credit cards might hurt your score.

You can take a few simple steps and ensure that your credit score is higher than 700.

- Maintain a long healthy credit history. Keep alive your oldest credit card and be sure to pay all bills in time. Never keep bills pending over a 30 day period. If in a crunch at least pay the minimum charges due.

- Do not have too many credit cards. Learn to say “NO,” to offers of free credit cards. And, maintain a good credit limit. Avoid using all the available credit on the cards.

- Ensure that the credit report you have is accurate and that there are no errors clerical or otherwise.

- Plan your finance such that it is healthy. Consider debt consolidation.

- Never suddenly close or open accounts. This leads to suspicion that you are trying to manipulate your credit report.

- If you are having problems speak to your creditors well in advance and work out a stage wise repayment. Request the creditor to refrain from reporting the late payment.

- Late or delayed payments drive your score down so always pay bills dead on time. Keep a tab on due dates and ensure that all bills are paid.