07 Feb, 2013 07:59 PM

How to improve you Credit Score

It might be so that you applied for a credit card and it was rejected with no reasons quoted. The main and the most important cause for rejection of credit card applications is bad credit ratings I.e. a negative credit history. If you have been using other credit cards or if you have taken bank loans/mortgages in the past, you would have already build your credit rating. If you have been making your bill/installment payments in time (and in the correct amount), you would have already acquired a good credit rating. However, if you have been irregular or if you have been defaulting on your payment dues, you would have developed a bad credit rating. This credit rating is calculated by credit bureau, CIBIL or the Credit Information Bureau (India) collects and disseminates an individual’s credit data across financial institutions. All credit card applications are checked for the credit rating of the requester and if it comes up as negative, the application is rejected out rightly. Also some banks take the Cibil score before giving a credit card.The Customer is rated between 0-900 by cibil and mostly banks now give cards above 720 score.

Some of these information will help you to improve your credit score.

Check your CIBIL credit report

This is the first and most important step in bringing in a discipline to your financial life. Logon to www.cibil.com, fill an online application form. Make a payment of Rs 470 using net banking or credit card. Go through the authentication process; if it is successful the credit score will be e-mailed to you in a couple of days.

Another way (though not recommended) is you can put a loan application in Bank. If the loan application passed on or gets thru - you can safely consider your application or cibil score well in norms (Banks do not charge any processing fees for submitting a car loan application). If, however - there is an issue in CIBIL report - you can get intimation from respective bank for seeking further clarification or even rejection. Through this process - you may though not get to know about your exact CIBIL Score/Rating, but can know is - whether your CIBIL score meeting norms of bank for lending. This may not charge you a single penny. (Caution - Do not put multiple application as it will start showing in CIBIL that you are seeking loan from multiple banks and may hinder your borrowing capacity)

After you get your credit score please check if your name, age, date of birth and PAN numbers are accurate. If not, report this to CIBIL immediately. Then check for the accounts held and loans being serviced under your name. If there are any discrepancies, report to CIBIL immediately, as it could bring down your credit score.

Manage your credit cards well

Some people like to flaunt their credit cards. If their wallet has some 10 divisions, they would like to fill it with 10 different cards. This is a definite no for a lender.

"It simply shows that a person is credit hungry and this is not something we would like to see on a person's credit history," said a credit card department official of Axis bank. So if you have more than two credit card accounts close them immediately.

Make payments on time

Having too many credit cards becomes a problem when it comes to payment. You may not remember last date for all the credit cards. Any delay in payments would attract surcharge, late payment fees, interest charges and proportionate service taxes.

So you might actually end up paying a lot more than usual. And banks won't let you go without getting their money.

Make sure you pay not just your credit card dues on time but also your telephone, utility and insurance premiums on time. "Missed payments negatively impact credit history which most lenders look into it to determine the risk on a prospective borrower, though the recency of this occurrence is also considered.

As an example, a default which occurred a decade ago will not have the same impact as a default which occurred a year ago," said a senior official with one of the bureaus.

Pay your dues in full

Every bill will show you minimum amount due. Don't get excited that the amount is much lesser than what you actually owe the bank. Always pay your entire amount, because the remaining amount will show as overdue in your CIBIL score, which could hurt your score dearly.

Also the banks will charge interest on the entire amount even if you pay minimum amount due.

Close unused accounts

If you have ten different bank accounts close the ones you don't use. You can do well with 2 to 3 accounts. Dormant accounts can attract fraudsters to misuse your accounts. Same is the case with loan accounts. After you have cleared all your dues please make sure that you follow up with the loan officer and get your loan closure letter.

Do not use your entire credit limit

If your credit card has Rs 1 lakh limit, it does not mean that you have to use the entire Rs 1 lakh every month.

Just because you are eligible for a loan of Rs 50 lakh, it does not mean you have to borrow the entire Rs 50 lakh. Give a lot of room for credit. Lenders like to issue loans to individuals who are not credit hungry. It could work in your favour as your interest may go down.

So wake up to reality. Go get your credit score and work towards achieving that dream home or car. Live a financially healthy life.