Credit scores are an important role in one’s financial life. Based on financial history, credit bureaus score you on a scale of 300 to 850. This score determines your creditworthiness for a future loan or a credit card. It is one of the major factors based on which banks and financial institutions decide whether to approve your loans and at what interest rate. Currently, employers are increasingly using credit scores as part of background checks before hiring candidates and even for promotions.

If you score 750 or above, chances of your loans getting approved are high. However, anything below 750 means either your loan or credit card applications will be rejected or you will have to avail them at a higher interest rate. If your score happens to be low, you can rebuild it by following these steps:

  1. Check your credit report for errors: Every so often, banks or financial institutions fail to update credit bureaus regarding repayments because of which, credit reports reflect closed loans or paid off dues as currently active. Wrong information can also result from clerical errors on credit bureau’s or lender’s part and also due to some fraudulent transactions in your name. If you find any wrong information in your credit report, immediately inform the credit bureau and your lender so that they can rectify it.
  2. 2. Pay your dues on time: Your payment record plays a major role in your credit report by contributing 35% of the total score. Therefore, it is important to be consistent with your debt repayments. Your timely repayments in future will steadily improve your credit score.
  3. Maintaining proper balances: This is another easy way of improving your credit score. Start with a secured credit card to help build your credit. Maintaining them with a balance of 10-30% of the credit limit will inform lenders you are creditworthy and savvy on how to utilize your credit.
  4. 4. Maintain a proper credit mix: Secured loans such as home and business loans are good loans as they are used for asset creation. Timely repayment of these loans improves your credit score. Unsecured loans such as personal loan and credit cards are primarily used for personal consumption needs. Having too many of them reflect poorly on your credit behavior. For a good mix of credit, it is recommended to have 3-5 revolving accounts and at least 2 installment loans.
  5. Don’t make too many inquiries for loans: Whenever you apply for a loan, a credit inquiry is made by your lender, which is then recorded in your credit report. Having too many inquires within a short span of time shows that you are credit hungry and brings down your credit score. Try to avoid new loan inquiries if you already have a low credit score.
  6. Monitor your co-signed, guaranteed and joint accounts: Closely monitor the statements of your co-signed, guaranteed or jointly held accounts, as you are equally liable for missed payments. Negligence on the part of the joint holder or the guaranteed individual can unpleasantly affect your credit score.

Remember, if something seems wrong, talk to the credit bureaus. Removing an error could also improve your score, though it may take about a month (or more) for the dispute to go through proper channels.

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