A credit score is 3 digit score that helps the lender decide if the credit facility has to be approved or not. A credit score is based on the credit you have, how much of it you have utilised and your repayment behaviour. Having a good credit score ensures that you get the credit facility a lot faster and you will also be in a position to bargain for the a lower interest rate and other terms and conditions. The lenders prefer to lend to people who are responsible for their credit and are servicing it well and having a good credit history and score.
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How can you get a low credit score?
There are a plenty of reason why your credit score has reduced. The most common are the following:
- Late payment, even if it is for a couple of days.
- Returned cheque due to insufficient funds.
- Too many hard credit checks.
- Bankruptcy or foreclosure.
- Settlement of loan.
- Not a good credit mix.
- A high credit utilisation.
- Adding more credit when you already have others.
- Closing credit cards after paying the balance off.
- Missing payments.
- Shopping excessively on your credit cards
The above harms your credit score deeply and this in turn leads to you not getting a credit facility approved.
How can you build a good credit score?
A bad credit score can be a blow to you when you are in need of a loan or any other credit facility. There is no point crying over something that can’t be changed, but you can start by fixing the problems.
The following are a few ways with which you can start building a good credit score:
- Never miss or delay any payments:
You must never miss the payment even by a day or by an hour. To avoid missing payment, you can choose auto pay. You can give a standing instruction to the bank and ensure that the payment is going every month. This will positively impact your credit score. You can make an arrangement to pay a week earlier only.
- Review your debt and consolidate it, if needed:
This is an important task as you can get rid of credit facilities that you are not likely to use. The unused facility will also contribute to the debt burden ratio and you won’t get a loan if your debt burden ratio is more than 50% of your income. If you have more than 2 credit cards, you can consider consolidating the credit card balance into one credit card where you will be paying lower interest. You can choose a credit card that offers 0% balance transfer plans. Once you have cancelled a card, make sure that the information is updated with Al Etihad Credit Bureau.
- Check your credit report regularly:
Once you have started making payments on time and consolidated your debt, go back and check your credit report to see the progress. You will learn where you are going wrong and you can fix it and help increase your credit score.
- Check your credit utilisation:
Make sure that your debt burden ratio is not more than 50% of your income. Ensure that at all times your credit utilisation is under 40% of the entire credit limit. You can get this information on your credit report.
- Take ownership:
You needed the credit hence you took the credit facility. No one forced it on you. You need to start taking ownership for your credit and deal with it. Make sacrifices like eat at home instead of dining out, rent a movie instead of going to movies, entertain your friends at home instead of going out, etc. These are little things that will help you save money and you can start clearing your debt. You debt should be your utmost priority and your entertainment and leisure comes after it.
- Check for discrepancies in your credit report:
There is a good chance that there might be some credit facility that might be attached to you but is not yours. This could be a genuine human error. If you spot such error then get it fixed. This could also be an indication of identity theft. Whatever it is, your priority is to get it checked and fixed at the earliest and hence you must keep checking your credit report regularly.
It is quite simple, if you have taken any credit facility, service it and clear out the balance without missing any due dates. Don’t over utilise your credit limit and take ownership for your debt and clear it out at the earliest and your credit score will improve.