Ways to Clean Up a Bad Credit Score


BENGALURU: As you need to declutter your home to allow space and positivity leap inside your life, you need to clean up a bad credit score to allow wings of hopes and dreams stay alive. With good credit scores you get credit worthiness and are eligible for better financial goals and plans in life. Indeed you are eligible for loans and credit cards at better terms, at lower interest rates and with banks of your choice. When you have good financial reputation you enjoy benefits in other walks of life too. You have better employment opportunities, insurance policies and shopping benefits.

However if your credit information report shows a low credit score, you should not lose all hope. Let’s explore ways to clean up a bad credit score.

First of all it is imperative for you to know about the factors that play a role in your CIBIL score calculation. Basically there are four factors which play crucial role in affecting your CIR.

Your cycle of repayments affects the score. Whether you make late payment or miss an EMI they both will bleed the score.

Excessive use of credit limit is another indicator of mismanaged funds

Too much of unsecured loans such as personal loan and credit cards affects the score too.

If you open too manycredit accounts in a short period that also appear as negative financial behaviour for your report.

Keep these factors in mind and try to increase the score and change credit history before you look for loans for bad credit score.

Follow repayment discipline month on month

Paying your monthly loan instalments, credit card bills and other outstanding go a long way in improving the score. If you meet your financial obligations without a miss, you are capable of paying back the amount lent to you. The banks can reply on you and grant more credit whatsoever. This certainly helps to build a good credit history and boosts the score.

Although it is not easy to repay when mounting debts hold on to you. Best way to handle a financial crisis is to cut the expenses and have a budget. You need to have enough credit in the accounts and set automated payment systems for EMIs and credit cards. This way you would never miss the payment.

Check your credit limit now

Using your credit cards aptly is very important for good credit scores. Herein “credit utilisation ratio” plays a major role. If you do not use credit card at all, you should apply for credit card now. No history is not good for your CIR either.

It is advisable to use your credit limits in moderation. Using up all funds every month shows you have bad spending habits. It affects scores adversely at the same time. Instead raise your limit so that there is always a decent gap between credit limit granted and credits used. You should always monitor your credit accounts closely and keep the credit utilisation ratio up to 30 percent of the credit limit allowed.

Get right mix of unsecured and secured loans

If you have higher burden of unsecured loans such as personal loan and credit cards than secured loans including home loan and auto loan, your score is bound to bottom down. Thus try to reshuffle the loans mix by paying off unsecured loans first.Home loan is always considered better than personal loan.

Hold on before you make credit request

After your loan application is rejected it is imperative that you apply for credit somewhere else. But this is not a good practice. The rejected application has already affected your credit history and more enquires will only highlight your insatiable hunger for credit. This will lead to a very high rate of interest too. Thus you should instead try to improve the history for a couple of months before you apply for further credit.

Review your CIR regularly

Sometimes the CIR score fall for none of your faults. Take for instance, when bank delays to report the successful repaymentof a loan and instead it shows up as a default or missed payment, the score is bound to fall steeply. Herein you need to raise a CIBIL dispute. Then get the correction done with proofs and your score will be back to the normal within 30 to 45 days. So it is very important to ensure that your good history is always updated in your report.

Thus the best way to clean up a bad score is to build a good credit history,timely repayments and cleaning up the blots on CIR gradually.

'Written by Arun Ramamurthy, Director, Credit Sudhaar & author of Unlock the Power of Your Credit Score : India’s first book on Credit Scores'