Your credit score is a three-digit score that reflects your creditworthiness or ability and willingness to repay your dues on time. This score is used by lenders to decide whether you grant you a loan or a credit card.
A higher score makes you more creditworthythereby boosting your chances of qualifying for a loan or a credit card at favourable terms. A low score does not mean that you will not get a credit card or a loan, but it means that you may have to pay a higher interest rate. You can always take steps to improve your credit scores and become eligible for a lifetime free credit card.
What Decides Your Credit Scores?
Generally, a credit score of 700 and above is considered creditworthy for sanction of loans and credit cards at terms favourable to you. The credit score is calculated after considering the following factors:
- Your Repayment Record: The major factor determining your credit score is your track record in making your bill payments and EMI payments in the past few years. Timely payments can have a positive impact while a delay in making even a single payment can drag your credit score down. If you have an excellent repayment record you may be eligible for a free credit card that has no annual fees or charges.
- Your Credit Utilisation Ratio: This refers to the percentage of the sanctioned credit limit being used by you. So, the more you use your credit card, the higher is your credit utilisation ratio reflecting your reliance on debt. A credit utilisation ratio of under 30% is consideredthe ideal level. You can always take steps to lower this ratio and improve your credit scores.
- How Old is Your Credit Card: The longer you have been using a credit card, the better it is for your credit score. Successful usage of a credit card for a long time shows that you have a track record of timely payments and the issuer bank is happy with you.
Steps to Improve Credit Scores
Improving your credit scores may take some time so the earlier you start the better it is.
- Since good scores depend on your ability to repay your bills and due payments on time, you should maintain discipline in making your payments. You can do this by setting reminders on your phone or calendar.
- Maintain your best credit cards by making all the due payments on time. This helps in enhancing your creditworthiness. Also do not close the credit cards that you are not using if they do not involve any kind of fees or charges. Closing an account can enhance your credit utilisation ratio and lower the credit score.
- A regular review of your credit scores can help you to check for any discrepancies and take remedial measures. Any incorrect information about your credit history can harm your credit scores.
- Do not apply for too many credit cards- Making multiple applications for credit cards can have a negative impact on your credit score since each application will mean an enquiry into your creditworthiness.