For many, a credit score it may seem like a simple and inconsequential three-digit number. However, for a lender, it provides deeper insight into a borrower’s financial behavior and patterns. They look at credit reports to understand the borrower’s ability and willingness to repay the debt.

You can imagine how crucial that is because, at some point in life, the need to get a Credit card or a personal loan may arise. That list includes a Mortgage loan also. If your score is low, you may have to pay higher interest rates or you may not be able to access any financial products.

Unless your credit score is low, there is no reason to be alarmed at this time. The goal of this article is to make you aware of how much your financial well-being is tied to that simple three-digit number.

And finally, in case this article is a wake-up call for you, I hope you get your finances on track because that would be a win in every way.

Further reading: Home Truths: Top Tips to Help Home Loan Borrowers!

The simple three-digit number: what is that?

Is his credit score; the higher the number, the better it is for you. A credit report contains detailed information about your credit and loan history, including identity information, the number of credit cards and loans, your payment history, and recent applications for financial products. The numerical summary is derived from your payment history and extensive inquiries made by banks and financial institutions based on your credit applications.

His credit score would typically fall into any of the following categories:

Score Category
300 – 549 Poor
550 – 649 Fair
650 – 749 Good
750 – 799 Very good
800 – 850 Excellent

There are four main offices in India that determine your creditworthiness. They are Experian, CIBIL, CRIF High Mark and Equifax. Now, if you’re wondering which agency credit report to check, let us tell you that it doesn’t matter. What matters is that you review your credit report every month. While there may be some variation in the score shown on each bureau’s report, the difference will be minimal. You can start right now by reviewing your credit score here.

Further reading: 7-Step Guide to Become Financially Strong in Fiscal Year 2023-24

Monetary discipline for peace of mind

Let’s face it: without exercise, there is no fitness; without self-control, there is no freedom; and without monetary discipline there is no financial well-being. While you can get away with the first two for a few years, a life without money discipline will catch up with you quickly.

If you are being irresponsible with your Credit Cards or Loans, the credit bureaus will take note of it and you will know it. Not only that, how can you rest easy knowing that you owe money to lenders or that you are missing payment dates? It’s just not practical.

On the other hand, if you are responsible with your money, you are already calm because there is nothing to worry about.

Now that you know how important financial well-being is, here’s how you can maintain a credit score:

  • Avoid late payments and pay only the minimum due

This is the most important factor because this is where most people default. Avoid borrowing if you don’t have the bandwidth to meet your payment dates. A missed or late payment can show up on your credit report for typically seven years. Late or missed payments have a big impact on your credit score. Also, avoid paying just the minimum due, but rather pay your bills in full and on time.

  • Maintain a healthy credit utilization ratio

At all times, keep your credit utilization ratio below 30% of your total available credit limit. Try to spread your spending across multiple credit cards to keep your credit utilization ratio low.

  • Maintain a mix of credits

Unsecured loans generally carry additional scrutiny risk as there are no collateral involved. So compared to secured loans, these loans pose a higher risk to the lender. Therefore, keep a mix of different loan products to reduce the negative impact on your credit score.

  • Don’t use up your credit limit

Come on, this is a no-brainer, right? But still, everyone should remember this. Don’t get to a point where you end up maxing out your credit cards.

  • Check your credit score regularly

Make it a practice of financial hygiene. A new credit report is generated every month, and without fail, you should check what your score is. Even if you’re paying on time or have good credit, keep checking because if there’s a mistake, you’ll be able to flag it.

So, keep the above five points in check, and you’re good to go. Now that you know why checking your credit report is essential and how to maintain a credit scoreI leave you with a story about why it is important to always be aware of your credit score.

A friend of mine with little or no credit had borrowed a small amount from a lender. Obviously, he repaid the loan on time. However, the lender had added an extra $30 later to her bill, and she was unaware of that extra amount. So, for example, if she had borrowed $1,000, I was supposed to return $1,030.

When your payment date came, you paid $1,000 and went on with her life until one day she randomly checked her credit report. Yes, because of that delay of $30, his score was negatively affected. Obviously, he contacted the necessary people to fix it, but if he had checked his credit score regularly, you would have gotten the error rectified well in advance.

Further reading: How to get a credit card with a higher credit limit and attractive rewards programs

Finally, I leave you with two points:

  • If you’re looking for a credit card to help you maintain a healthy credit score, check out the YES BANK-Credit Card BankBazaar FinBooster or the RBL Bank BankBazaar SaveMax Credit Card. Both cards come with a free personalized monthly credit counseling report that helps you keep your finances and credit score in check.
  • Finally, if you are someone with any type of credit history, be sure to track your credit score every month. The effort is minimal, the costs are zero, and your data is safe. Your victory is our victory!

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