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5 healthy financial habits to build and maintain a strong credit score

Your credit report summarizes your credit repayment history, including past loan, current loan and credit card account details.

Credit score is three-digit numerical representation of your creditworthiness. Not only does it play a vital role in determining your loan and credit card eligibility, lenders also consider it to set loan rates. Hence, it is important for us to create and maintain a strong credit score. Here are healthy financial habits which can help achieve it:

1. Regular and timely repayment of credit card bill and loan EMIs

Lenders generally prefer lending to borrowers who follow a disciplined approach towards repayment of their credit card bills and loan EMIs. Even credit bureaus are widely believed to give significant weightage to credit repayment history while calculating credit score. All this makes it imperative to clear outstanding dues on time and in full. Remember that irregularity in clearing your debt repayment reflects in your credit report, and can hinder future loan eligibility and approval chances.

2. Limit your credit utilization ratio to 30%

This ratio refers to the proportion of total credit card limit utilized by you. For instance, if your credit limit is Rs 80,000 and your credit card transactions amount to Rs 20,000, then your credit utilization ratio would be around 25%. As lenders generally consider credit utilization ratio of over 30% as a sign of credit hungriness, bureaus may pull down your credit score by a few points on breaching this level.

If you tend to frequently breach this mark, either request your card issuer to increase your credit limit or get another credit card. Doing so would increase your overall credit limit, and also bring down your credit utilization ratio.

3. Check your credit report at regular interval

Your credit report summarizes your credit repayment history, including past loan, current loan and credit card account details. Bureaus calculate your credit score basis this information. Given that your report may contain errors and possible fraudulent activity, it is prudent to check your credit report at regular intervals. Doing so would help to timely spot errors and get them rectified by the concerned credit bureau and lender.

You are entitled to fetch one free credit report from each of the four credit bureaus every year. Alternatively, you can also visit online financial marketplaces that provide a free credit report along with monthly updates.

4. Avoid direct enquiries to lenders

Whenever you directly apply for a loan or credit card, the concerned lender evaluates your creditworthiness by reaching out to credit bureaus to fetch your report. Such lender-initiated credit report requests are treated as hard enquiry by the bureaus, and may pull down your credit score.

Instead, visit online financial marketplaces to compare and choose the most suitable lender based on your income, credit score and other eligibility criterion. Credit report enquiries initiated by such platforms are considered as soft enquiries, and does not impact your credit score.

5. Monitor co-signed/guaranteed loan accounts

When you co-sign or become guarantor for any loan, you become equally liable for ensuring its timely repayment. Any form of delay or default in the associated loan’s repayment can impact the credit score of both the primary borrower as well as the co-signor. This makes it crucial to regularly review repayment activities in your co-signed or guaranteed loan accounts. Failure to keep a tab on them can result in your credit score taking a hit in case of any delay or default by primary borrower, which may lower your eligibility in case you require a loan or credit card in the future.

(By Radhika Binani, Chief Product Officer,

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Source: Financial Express