Building Your Credit Score
A credit score is a three-digit number ranging from 300 to 900 that rates your overall creditworthiness. The higher the number the higher is your credit score. This score is based on a number of factors such as ongoing loans or debts, payment history, number of loans, debt level, etc. The lender assesses your credit score before providing you with a loan or a debt. A high credit score attracts low interest while a low credit score attracts higher interest.
Building a credit score from a young age is usually recommended by experts. Wise financial decisions help you make a good credit score over time.
Benefits of good credit score
Let’s understand how a good credit score is beneficial for us in the modern era:
1. Ease in Loan Approval
You can easily get a loan if you have a good credit score and history. Lending partners trust the individuals with a good credit score as the chances of loan defaults are minimal.
2. Lower interest rates
The loans are available at cheap interest rates. You can get a personal loan, car loan, home loan or any other kind of loan at a lower interest rate.
3. Easy approval for a higher loan amount
A person with a good credit score gets easy approval for a higher loan amount or a credit score. It is good when you need a home loan or a car loan.
4. Long tenure loan
The lenders usually charge high interest for long-term loans as the risk of credit default is high. If you have a good credit score the lender is likely to provide you the loan at cheap interest rates.
5. Access to premium credit cards
Having a good credit score provides you access to premium credit cards. These cards usually come with a bundle of benefits such as loyalty points, free lounge access, hotel or movie vouchers, and a lot more.
7 Ways to Build Your Credit Score
After analyzing the number of benefits of a good credit score it’s time to understand the different ways to build a good credit score. The below-mentioned methods are effective even if you don’t have a credit history.
1. Open an FD (Fixed Deposit) based credit card
If you don’t have any credit history or credit score you can open a FD based credit card. It will help you create a credit history. Let’s suppose you deposit an amount of $500 with a credit card company and in return, they will provide you a credit card with a limit of $500. Before applying for one it’s necessary to understand the associated charges, fees, closing charges, etc.
2. Pay your EMIs, bills timely
You should pay your monthly bills and EMIs timely to build a good credit score. Late payment attracts penalties and negatively impacts your credit score. While calculating the credit score credit history is looked at.
3. Ask someone to cosign a credit card or loan
If you don’t have any credit score you may ask your friend or a family member to cosign a credit card for you. The primary account holder can get an additional card for you which helps to build credit score. Before doing so it’s important to understand the terms and conditions of the issuer otherwise wrong decisions may impact the credit history of both.
4. Take a small credit creator loan
You can take a small credit score builder loan to create your credit history. Make the payment of this loan timely. This loan incurred charges but it is a good way to build your credit score.
5. Have a look over your credit utilisation
Keep a proper check over your total credit utilisation. Credit utilisation refers to the credit used out of the available credit. The credit utilisation should range between 10 to 20 %. It is recommended to keep credit utilisation below 30%. People with excellent credit scores have a credit utilisation of less than 10%.
6. Avoid taking unnecessary loans or credit cards
You should not misuse your credit score. It generally happens with people having good credit scores. They get multiple loan and credit card offers and they apply for all of them which negatively impacts their credit score and may incur fees.
7. Keep an eye on your credit score
You should keep a regular eye on your credit score. Moreover, you should make efforts to improve your credit score at regular intervals.
Conclusion
Having a good credit score is useful for an individual. You can build a good credit score by following the above tips. Creating a good credit score takes time. So you should start building it at a young age.