Jack and Jill had a perfect life. Excellent salaries and an enviable lifestyle managed with the help of swanky credit cards. High salaries meant high credit limits which also meant more purchasing power.
Well, everything was great until last month when they decided to apply for a mortgage to purchase their new abode. And that’s when the world came crashing down.
Their mortgage application was rejected!
The couple was baffled. They had enough money to pay down the mortgage. But that didn’t matter. Their credit score was low, and lenders don’t like to give their money to individuals with a low credit score.
But Jack and Jill had always paid their credit card bills on time. They had probably missed the payment date a couple of times, but they didn’t have any bad credit on their hands. So what went wrong, thought the forlorn couple and pulled out their credit report online, free of cost, something they hadn’t been aware of before.
And that’s when they realized their follies – a late utility payment, a delayed credit card payment, loan enquiries, and high credit utilization. Their innocent mistakes were marked as blunders on their credit report, reducing their credit scores drastically.
Does the above situation sound familiar to you?
Discovering a low credit score can send you rolling into an abyss of dismay. However, boosting your credit score is not as hard as you may imagine. Financial discipline and a few smart hacks can help you bring your credit score up in just a few months!
Here are some tried and tested tips to boost your credit score in no time:
1. Close Any Unused Credit Cards
An open credit card that is not being used may harm your credit score in the long run. Besides, you don’t even need more than two credit cards, as the more the number of cards, the more statements you will get, leading to confusion and potential mismanagement.
2. Consolidate Your Debts
To build your credit score, it is vital to reduce your debts. However, it often gets challenging to keep up with multiple repayments, leading to stress and missed payments.
If you are struggling to pay multiple debts, it may be a good idea to consolidate all your debts under a single loan that offers a lower rate of interest. This will not only streamline your finances as you would only have a single debt to repay but also save you money in interest.
3. Lower Your Debt-to-Income Ratio
Debt-to-income ratio is a simple but important concept to get your credit score on track. It can be explained as the ratio of your total debts vis-à-vis your overall income. Thus, a higher debt-to-income ratio indicates a higher level of debt, which also means a lower credit score.
You can calculate your debt-to-income ratio by dividing your monthly debt repayments by your gross monthly income. For a good credit score, it is vital to keep this ratio below 40, according to most experts.
4. Increase Your Credit Limit
If your credit card company wishes to increase your credit limit, embrace it joyfully as a higher credit limit reduces your credit utilization without any effort on your part. Besides, a higher credit limit is handy for emergencies unless you cannot control your urge to splurge, in which case a lower credit limit may be better for you.
5. Review Your Credit Report Regularly
Every credit bureau in India, including CIBIL, must provide a free credit report to individuals once every year. This means you can download your credit report annually and review it for any incorrect listings, free of cost.
Especially if you have paid down any debts, you may still find them listed on your credit file, bringing down your credit score for no fault of yours. Immediately report such discrepancies to the respective credit bureau and have them removed from your data to improve your credit score quickly.
That was simple, wasn’t it?
These simple hacks will enable you to rebuild your credit score in just a matter of a few months. However, it is even more important to follow sound financial habits in the long run, such as making your repayments on time and not spending beyond your means, to keep your credit score high in all times to come.