Can You Bounce Back From A Low Credit Score

Yes, you can bounce back from a low credit score. Having a low credit score can be pretty disappointing but with a few measures you can expect to improve your credit score over a period of time. Let us look at what can be done.

Measures to Improve your Credit Score

1. Credit utilization ratio – A credit utilization ratio tells us how much percentage of the credit available is being used by the borrower. It is calculated as credit used divided by credit available multiplied by 100. It is advised to maintain a credit utilization ratio of less than 30%. The lesser your ratio is, the more you are perceived as creditworthy and financially disciplined.
2. Avoid multiple credit applications – Applying for loans in a short span of time does not work in favor of your credit score. Too many applications imply many financial obligations which means a lower capacity to pay for future loans. Hence, applying for too many loan applications is not ideal for your credit score.
3. Pay your dues regularly – To improve your credit score, you must pay your credit card bills, EMIs, and other outstanding, on time. Do not only pay the minimum amount due but the entire amount before the due date. This will help decrease your outstanding credit and hence improve your credit score.
4. Review your credit report – Make it a practice to review your credit report regularly. Credit reports are issued by credit bureaus after careful analysis of the data provided by banks and financial institutions. The credit report can tell you what factors are bringing your score down. You can start working towards improving those factors. Sometimes, credit reports can also have an erroneous entry which is bringing your credit score down. You must get in touch with the credit bureau to correct the error and reflect the new credit score.
5. Track the repayment status of joint loans – Keep an eye on the repayment status of joint loans. You might be paying your dues on time but check if the joint owner is doing the same. Any pending dues can lower your credit score.
6. Check the eligibility criteria – Every loan will have different eligibility criteria and it is best to check the same before applying. This way you can avoid unnecessary loan rejections. Lesser rejections will help build up your credit score.
7. Do not close old good credit accounts – Old debt accounts which have been paid off regularly and in full should be kept on your accounts. This way when the credit bureaus analyze your report, they can see good financial discipline and would consider that as a measure of your creditworthiness. 
8. Credit mix – Keep a good mix between unsecured and secured loans. This shows your ability to manage all types of credit and hence improves your creditworthiness. 

 

Credit Scores and their Relevance

 

 

Some facts about Credit score 

1. Checking your credit score is free. You could easily check your credit score on CreditMantri and take action accordingly if needed.
2. You can reverse a negative credit score. Yes, a negative credit score isn’t your shadow forever and can be reversed by trying to improve it, taking into account the measures listed above.
3. Your family’s credit score doesn’t affect your credit score. A person’s credit score is based on their credit behavior and is not influenced by anyone else’s credit history.
4. A credit score has nothing to do with your income. That’s correct. A credit score is determined solely based on your credit history and is not impacted by changes in your income.

 

Conclusion

Bouncing back from a low credit score is certainly possible. One needs to pay their bills on time, maintain a low credit utilization ratio, keep a good mix of secured and unsecured loans, keep good debt on account, avoid multiple loan applications, etc. A score of 750+ is generally considered very good by lenders. It facilitates easy approval of loans and faster disbursal.

FAQ of Can You Bounce Back from a Low credit Score

1:What are 3 ways you can hurt your credit score?

You hurt your credit score by missing payments, applying for a lot of loan applications, maintaining a high credit utilization ratio, etc.

2:What is the most damaging to a credit score?

Using your credit cards to the maximum limit is the most damaging to your credit score. Lenders perceive it as a poor financial discipline.

3:What increases your credit score?

Paying your dues on time, keeping good debt on your account, reviewing your credit reports regularly, and keeping your credit utilization ratio low.

4:Does income affect credit score?

Your income will not directly affect your credit score however, your ability to pay dues will affect your credit score.

5:What are the ranges of credit scores?

Credit score ranges from 300 to 900. The higher the score is, the better the applicant’s creditworthiness.