There is one common thing amongst all the people who have excellent credit scores – their monthly payments on all their debts – loans and credit cards – are made promptly. With credit scores being used on a wide-ranging repertoire of credit products, it is important you understand some simple steps to keep your credit score above average at all times. You will be surprised to note that these steps are very simple!
NEVER make a late payment – Apart from paying hefty penalties and seeing a decrease in the credit limit on credit cards, late payments also have another dangerous side effect. Every late payment you make will be counted against you in your credit report. Also, remember that the number of days by which you make the late payment will affect the quantum of the impact it will have on your score. Late payments more than 30 days will surely bring down your score.
Pore over your statements –Sometimes, you may have your own relatives or partner making unnecessary transactions that add to your financial burden. So check your statement for two things – One, if there were any fraudulent transactions that you need to report to your banker and avoid its liability. Two – to check if there are large purchases that you think you could have avoided because after all, it is you who has to pay the principal sum and its interest back to the bank!
Credit usage – Most bankers will offer you a card with a small credit limit initially, unless you have exceptionally high credit scores and your credit report is outstanding. When you maintain your payments well and show some credit activity, you banker’s faith in you will increase and they will also increase your card’s credit limit. At this stage, you may be tempted to spend more than you should on your card and end up messing the spotless record you have. You should always remember to use note more 30% of your credit limit at any given point in time. Emergencies of course can be excluded from this rule but otherwise, stick using only to this maximum percentage of your credit limit. Not only do you stand the chance of paying off your balance each month without incurring any interest, you will also have plenty left over in times of emergencies when you follow this advice.
Applying for cards – Just like loans, you should also watch how many credit cards you apply for and retain. Having too many cards may indicate that you prefer living a life on credit rather than on what you earn. When you have too many cards, the best thing to do would be to transfer the smaller balances from multiple cards to just one or two with good interest rates. This process is known as consolidation of debt. Once done, you will only have to worry about 1-2 cards’ payments and the interest rate applied on your balances may also improve thus reducing your EMI.
So, have an easy to track and understand relationship with your banker in terms of credit cards and loans and you will see your credit score improve over a period of time.