Posted on October 25, 2011 by R S in Banking
The lending institutions such as credit card issuing companies, banks, and non banking financial institutions use credit score of a person or a company to assess the possible risks of lending money to them. The credit score is the qualifying marks of a customer for the entitlement of a loan, it also determines the terms of the loan, priority, interest and credit limits. For a new enterprise without any credit past or history of credit, the individual credit score of the entrepreneur is considered as the credit score of his business.
In India, there are few credit score rating agencies like CIBIL or Credit Information Bureau (India) limited, promoted by HDFC and State Bank of India. There are other similar agencies .viz. Trans Union, D & B Information Service India Pvt Ltd. They were created out of the effort of the Reserve Bank of India and Government of India.
Here are some suggested steps to raise your credit score within a short time:
Correct mistakes: You have every right to check your credit score report at least once a year.
If it contains any mistake or any entry that you are not agreed with you must do the necessaries to correct them through proper review.
Make payments on time: The credit score largely influenced by your credit history and timely payment.
Lower Balance Higher Points: Your credit score depends on the portion of the loan amount you are utilizing. So try to keep it as low as possible, never more than 40% of the credit limit.
Early settlement: Never leave any balance outstanding for a longer
Maintain older Credit cards: Avoid cancelling, try to keep your older credit cards open so that you have a long credit history record to show.
Maintain older accounts: Avoid closing, try to keep alive your older credit accounts so that you have a long credit history record to show.
Limit your number of credit accounts: Keep the number of credit card or loan account number as low as possible to show that you are not frantic for money.
Varieties of credit: If you have variety in borrowing like mortgage, installments, different types of credit cards your score gets improved.
Use secured cards: These credit cards are definitely improves your score. These cards with tight credit bounds within a limit and comes with lower interest and charges.
Increase credit limit: Request to raise your credit limit.
How to Improve Your Credit Score in 6 Months?
So from the above discussions we have learnt the steps for improving credit score.
In the following, we will show the influencing factors and their degree of influence on credit points. If we use the essence of both the lessons simultaneously, that is, steps of improvement and the effects of influencing factors (mentioned below), we can easily improve our credit score within a short period, may be within a period of 6 months.
Influencing factors in Credit Score:
The points in a credit score is generally awarded on judging certain parameters of the borrower, certain weight is given to each of these parameters. “FICO”, an international credit scoring bureau rates borrowers by the following weightage:
Payment History 35%
Outstanding Amount 30%
Varieties of Credit 10%
Old Credits 15%