How to negate the impact of past financial mistakes on your credit score.
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How to fix your credit score?

Most people realise the need to have a good credit score at the time of applying for a loan or a credit card or opening a bank account.

Your credit score not only showcases your fi nancial habits but also your character. That is why fi nancial institutions check your credit report whenever you apply for a loan. Credit scores are also considered when you go to buy a telecom connection or apply for a new job. A credit score is a number based on an analysis of your credit history (which credit bureaus source from fi nancial institutions).

It is a three digit number between 300 and 900. It is based on your credit history and gives the lender an idea about how likely is it that you will repay the loan. A score of 750 and above is considered good. Most people realise the need to have a good credit score at the time of applying for a loan or a credit card or opening a bank account. This is because a low score may lead to rejection of your application. In case of a loan, the lender may even charge you a higher interest rate. It is, therefore, advisable to maintain a good credit score.

K.A. Babu, Deputy General Manager, Retail Business Department, Federal Bank, says: "There was a time when credit score was not given much importance. But of late it has become important. Different bureaus come out with their own credit reports. Generally, 800 is considered the best score, but few people get it. Anything between 700 and 800 is considered good."

The process of applying for a credit report is simple. You just have to fi ll some personal details on the website of the credit bureau and pay a fee, which is around `500. You get the report online. In India, the score is collated by credit bureaus like CIBIL, Equifax, Experian and High Mark Credit Information Services. Though a poor credit history can hit your prospects of getting a loan, there are many ways to improve the credit score. We bring you a few tips.

CHECK YOUR CREDIT REPORT

The first and foremost thing you must do is to get your credit report by paying a fee online. Check the score. If it is less than 700, you must take steps to improve it. If there are any errors in the report, raise the issue with the credit bureau.

REGULAR PAYMENT OF BILLS

Pay bills on time. This is because your payment history amounts to almost 35 per cent of your total score. Maintain 'no late payment' status for the longest period possible. PAY OFF A DEBT If any amount is outstanding against your name, get rid of it immediately. It doesn't matter how small the amount is. If it is stated on your report, pay it off as soon as possible.

PAY YOUR EMIs Always maintain the required balance in your account, particularly when an EMI is due. Unpaid loans hit your credit score badly.

DON'T CLOSE UNUSED CREDIT CARDS Gaurav Wadhwani, co-founder, Credit Sudhaar, says: "Note that a closed account will still show up on your credit report. It may be considered by the bureau for calculating the score. Also, cancelling a credit card can lower the credit score." So, a better strategy is to occasionally use all credit cards so that the issuer doesn't stop reporting the information to the bureaus. Having a long credit history increases the score.

NO NEW CREDIT CARD PURCHASES

If your score is already low, do not apply for a new credit card. Also, in such a case, it is advisable to pay cash for purchases instead of taking credit.

DON'T EXHAUST THE CREDIT LIMIT Another measure you can take to improve the credit score is to pay down credit cards and avoid default. Generally, you should try to keep the balance of each credit card at least 30 per cent below the credit limit, says Wadhwani. He adds it is advisable to give preference to paying down credit cards close to their credit limit."

SEEK PROFESSIONAL HELP

Organisations such as Credit Sudhaar help in restoring the score.

MAINTAIN YOUR CREDIT HISTORY

An individual with no debt is at the risk of getting a bad credit score as there is no way of measuring his or her credit behaviour. Lenders tend to avoid people with no credit history. So, if you do not have a credit card, there is no harm in getting one. But always pay on time and don't overspend. ~