How Is Credit Score Calculated, Its Importance And How To Improve It?

July 4, 2022July 4, 2022 Shailendra Kumar checkcibil score, how to check CIBIL score

One of the most crucial indicators of your financial wellness is your credit score. You must know how to check CIBIL score because it shows lenders how responsibly you utilize credit at a glance. The higher your credit score, the simpler it will be to get additional loans or lines of credit. A better credit score may help you get the best possible interest rates when you borrow.

There are some basic things you may do to raise your credit score. It takes some time and effort. Here’s how to improve your credit score step by step.

How to calculate credit score?

The credit score is calculated differently by each credit agency; nonetheless, the following common elements are taken into account:

History of payments

One of the most crucial elements that impact your credit score is your payment history. If you’ve paid your bills/loan EMIs on time, you’re a responsible borrower who’s less likely to default. Responsible credit behavior will also qualify you for lower interest rates on loans and faster processing of your applications. Late payments, missed payments, and other infractions can drop your score by many points.

Credit utilization ratio

Credit utilization is the second most crucial element that influences your credit score. A credit utilization ratio is the percentage of total credit utilized to the available credit limit. Your credit utilization ratio is determined by dividing your outstanding debt by your total credit limit. Experts recommend that people utilize just 30-40% of their credit limit to keep a strong credit score.

Total credit accounts

Having a solid mix of secured and unsecured credit provides a respectable credit score, albeit being a minor element. Secured credit comprises a vehicle loan or a house loan, whereas unsecured credit refers to your credit card. An excellent record of total accounts shows your ability to manage two accounts properly. Apart from this, the credit score is calculated by considering the age of the credit, the kinds of accounts, and credit queries.

Credit lines’ age/duration

According to Shetty, this has a moderate influence on your score. Your credit score will improve inversely proportionally to the age of any loans or credit cards, meaning that the longer you’ve had them, the better. It demonstrates that you have managed your credit responsibly by paying your bills on time.

Improving your credit score

These suggestions can help you raise your credit score after learning more about it and how to do it.

On-time repayment

Maintaining a decent credit score requires timely payments. If payments are not made on time, your credit score will suffer. Whenever you fail on a payment, it is documented on your credit report, lowering your credit score and reflecting on your repayment history. As a result, be sure to pay on time. The payback is due on a specified day; put a reminder on your phone, so you don’t forget.

Have several forms of credit

Another way to improve your credit score is to use various types of credit, such as secured and unsecured credit. Having a wide variety of unsecured credit might hurt your credit score. As a result, make every effort to obtain secured and unsecured credit (credit cards). Ascertain that both accounts are well-maintained and free of defaults.

Always avoid accruing debts

Many secured credits, such as loans, affect a consumer’s credit score as multiple unsecured credits. Your credit score might be lowered if you have an excessive number of debts in your name. As a result, taking out a single loan at a time is recommended. You may apply for another after you’ve paid off your first loan. Also, be sure you’re not overusing your credit card. Credit card use may easily slip through the cracks, so keep track of it.

Check your score report

Is your credit score declining despite a strong payment history? It might be due to a mistake in your report. For example, you may have paid off one of your debts, but it still appears on your credit report. It might lower your score somewhat. As a result, reviewing your report regularly is recommended. Bring any inconsistencies to the attention of the credit agencies. Eliminating these mistakes may help you improve your score.

Final thoughts

Improve your credit score, particularly if you want to use a loan to buy a new vehicle or house or if you want to apply for one of the top reward credit cards on the market. When you begin taking actions to improve your score, you can contact the CIBIL score customer care number because it may take many weeks, if not months, to see a significant difference.