Zee Exclusive: 5 tips on how to maintain a healthy credit score

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Credit scores determine the financial health of an individual. They’re a 3-digit number issued by credit rating companies to prospective lenders of a borrower’s creditworthiness based on their credit history. The score ranges between 300-900 with 750 and above being considered good. A credit score essentially lets the lender know if a borrower under consideration has the ability to pay back the loan in a stipulated time or not.

A good score can unravel a better rate of interest to prospective borrowers as it renders them as reliable and can unlock many benefits, including access to loans and credit cards with the most favorable terms. It can be achieved over time by practicing healthy financial habits.

A few mindful financial steps can go a long way in keeping a credit score in the green range for lenders to successfully consider a loan application.

Here’s a five-point guide to maintaining a good credit score:

1. Maintain a healthy payment history

Credit scores depend heavily on one’s payment history that reflects if a borrower responsibly pays back. It is thus advisable that if an individual has scheduled repayment of loans or EMIs or a credit card, they need to pay them on time to avoid any negative impact on the credit score. Creating due-date alerts, setting up reminders, or automating payments for regular payouts can prevent defaults. Ensure the loan account has enough balance to meet the EMI payment each month, also make sure to remember the date of credit card payment. When unable to pay credit card bills in full, make sure to pay minimum due amount on time.

2. Maintain credit utilization ratio

Credit usage is represented by the credit utilization ratio calculated by dividing the credit being used by the total credit available to an individual. This is the second leading factor of a credit score. Ideally, the credit utilization ratio should be below 30% of the total available credit limit. The lower the credit utilization ratio, the more beneficial it’ll be to build a higher credit score for financial security.

3. Check your score regularly

Credit Scores require periodic checks to detect discrepancies and notify credit authorities immediately. Keeping track of credit reports also helps to know what might be working in favor or against a loan. It is useful to remember that an individual is entitled to a free credit score once a year.

4. Be mindful of old accounts

The length of one’s credit history also plays a role in their credit score. The oldest credit account, the age of an individual’s newest credit account and the average age of all accounts contributes to this. It is thus advisable to keep a track of old bank accounts as they depict a long association with the banks leading to healthy credit scores. The older an average credit age is, the more favorable it is financially as the credit history for those accounts would remain on the credit report.

5. Plan credit wisely

Credit scores also take into account all previous borrowings. Too many unpaid loans can hurt a credit score as it shows an individual’s inability to manage finance. Timely actions towards stabilizing and maintaining the credit score, compounds to give better results over time. If the user implements these measures, it will help them improve their credit score.

(Expert comment by Nidhi Malik, Vice President, CSR, and Communications, Home Credit India)