Every time you’re online, you’re probably bombarded with tips about managing debt, creating a savings plan, budgeting, and other financial matters. But there is a really important factor which has a major impact on your personal finance – your credit history. A good credit history leads to a good credit score and a good credit score leads to a lot of benefits like easy loan approvals and lower interest rates.
What is a credit score? And why should I care about mine?
A credit score is the score given to you by a credit information companies like CIBIL, Highmark, Equifax, and Experian. In a nutshell, the score determines your credibility and ability to pay back borrowed money. A good credit score can give you lower interest rates on borrowing, eligibility for loans, credit card approvals, and other benefits. Getting a credit report is easy and you should ideally use it as tracking mechanism to improve your personal finance habits.
Even if you’re not planning on taking a loan any time soon, you should maintain a good credit score as it will be beneficial in the long run and will offer you some peace of mind. Follow these simple steps to maintain a healthy credit score.
1. Make payments on time
Whether it’s your credit card or a loan that you already have, making timely payments is a no brainer. Not making payments on time impacts your credit score negatively.
Besides, if you don’t pay all your dues on time then you are inviting late payment fees and added interest on the pending amount, effectively driving up the amount you’re paying off.
Expert tip: Don’t wait till the last date of your payment cycle to make your payments. Make the payment as soon as the amount is due or set up an auto-debit from your account at the beginning of every month.
2. Don’t max out your credit card limit
Unless you intend on paying off all your credit card purchases in the very next month, it is risky to use your maximum credit limit. It reflects on your score as someone who overspends beyond their capacity without a plan to pay it back.
The risk you also stand in this scenario is that if you are unable to pay off the entire card at one shot, you’ll be incurring more charges in the form of late payment fees and extremely high interest rates on the pending amounts.
3. Don’t make too many applications
Only apply for new cards and loans when it is absolutely necessary. Applying for a lot of credit can indicate debt or an inability to live within your means. Besides it can actually put you in a ditch as the EMI and interest may become a burden to your pockets.
4. Maintain a healthy credit mix
Though not required for a good credit score, if you want to really ace your reports and be eligible for the best interest rates and the highest credit limits, you should look at having a wide mix of credit cards and loans.
Though not the most important factor in calculating your credit score, it lets the lenders know that you can responsibly manage different types of debts and are a trustworthy customer.
5. Review your credit history from time to time
Make it a habit to track your credit history once or twice a year. This will help you understand which of your financial transactions are being tracked for the score, allowing you to better understand the dos and don’ts that apply to you. Also make sure to review your credit history for discrepancies and to check transaction details. Though mistakes are not very common, you don’t want someone else’s credit history reflecting under your name.
If you find yourself stuck in debt that you are unable to pay off, you should consider some unconventional ways to get out of debt. You can also sign up on the KyePot app and speak to our financial experts who will help you plan your way out of debt by using the power of group saving and borrowing. Starting a smart investment plan with KyePot will also help you be prepared for emergencies so you don’t have to rely on an urgent loan and can fulfill your needs without impacting your credit score.
As you can see, maintaining a healthy credit score is all in your hands. Now that you have these tips at your disposal we hope you can make the most of them! Let us know in the comments your tips and tricks to maintaining a healthy credit score.