Good credit is something you need to work hard on; it does not happen by accident. Maintaining a good CIBIL score is usually the result of making sound financial decisions. Healthy credit habits, including paying bills on time, will help you achieve and maintain decent credit scores.
Cultivating good credit habits is the key to improving your overall financial health. With this option, you will have access to a wide range of financial options. Whether you wish to finance a car, buy a home, or ensure some extra spending capacity with credit cards, when you perform a CIBIL score check for free on platforms like Stashfin, you can expand your choices effectively. A decent credit score opens doors to more credit card and loan options, better terms, and lower interest rates.
Why is a Good Credit Score Important?
Do you wish to rent an apartment? Or simply improve your monthly spending limits? A good credit score can help improve your chances of being approved for a personal loan application. Moreover, a good credit score can also help you save significantly on insurance.
Some crucial factors that affect your credit score are:
- Payment history
- New accounts
- Length of credit history
- Credit utilization
- Credit mix
When these factors are taken together, they determine how well you can manage your credit. This information is crucial to lenders deciding whether or not you qualify as a borrower and the respective rate of interest to offer. Do you maintain a history of handling credit responsibly and paying off all your debts on time? Have you ever defaulted in the past? Are you used to taking a lot of debt? Answers to these questions will assist lenders in determining how much risk you pose as a borrower.
Good Credit Habits You Should Practice Daily
- Ensure Timely Bill Payments
When you wish good results while performing a CIBIL score check for free, you should ensure that you are paying your bills on time. Your payment history is one of the factors that determines the CIBIL score.
To ensure that you do not miss paying your bills on time, you can set up an automatic reminder for monthly payments for at least the minimum amount that is due. You should also review your balance and ensure payments throughout the month rather than waiting for the bills to come due.
- Minimize the Credit Utilization Ratio
Credit utilization is a measure that determines the credit card balances against your existing credit limits. Here is how it functions: Add up your existing credit limits on the credit card accounts to calculate your available credit. Then, add up all your existing credit card balances. Divide the total balance by the total available credit while converting the value to a percentage to obtain the credit utilization ratio.
As far as the credit scores are concerned, a lower utilization ratio is a good sign. As per the general rule, it is recommended to keep the credit utilization below 30 percent to prevent any harm to your credit.
- Check Your Credit Score Regularly
It is also useful to know your credit score and how it tends to change over time. This knowledge helps you understand what effect your actions will have on your credit score. You can perform a credit score check for free on reliable platforms like Stashfin to be updated always.
Additionally, when checking your credit score regularly, it also helps you to spot any potential problems in case you might be getting off track. If you aim to improve your credit score, a rising score is a positive indication.
- Apply for a Credit Card Only When Needed
It is a great idea to ensure a mix of credit types and possess multiple accounts, especially for your credit score. It signals the lenders that you have proper knowledge of how to manage different forms of credit effectively.
However, multiple recent credit applications will affect your creditworthiness negatively. Every time you apply for credit or a loan, the lender will eventually run a request for your credit report. This is known as a hard inquiry. While a single hard inquiry might result in a short-term, minimal dip in your credit score, multiple recent applications can impact your credit score to a greater extent.
In case you have to apply for credit, ensure that you are aware of your creditworthiness. Only apply for credit when you have a higher chance of approval.
- Think Before Closing Accounts
Credit score checking considers your credit utilization ratio to a greater extent. Therefore, when you close your credit accounts, it might lower your existing credit while hurting your credit score in the short term.
This practice can also influence the average age of your credit profile. In case you wish to close an existing account to minimize the chance of charging up a balance, this might be the best course of action. Otherwise, you should consider retaining those accounts in case they feature a good credit history and a zero or low balance.
- Do Not Max Out Credit Accounts
It is recommended to keep track of your ongoing credit transactions, especially your credit card activity. Ensure that you are not exceeding or maxing out the credit limits, as they will reflect negatively on your credit score. You can think of setting up multiple alerts (like texts or emails) along with other services to remember upcoming credit payments so that you can manage your credit responsibly.
Conclusion
Building and maintaining good credit is an ongoing journey that requires consistent effort and discipline. By diligently paying bills on time, utilizing credit responsibly, and regularly monitoring your credit report, you can establish a strong credit history.
This not only improves your financial standing but also provides you with greater financial flexibility and peace of mind. Remember, building good credit is an investment in your future, and these expert-recommended habits will guide you toward a more secure and prosperous financial life.