In recent times, customers have become highly dependent on credit. The basic rule of borrowing money is that you ought to pay it back within a stipulated time period. This manages your real-time credit score. This credit score decides your further leverage for the approval of loans.
By not managing credit, you may end up getting into trouble. Thus, the easiest way of maintaining a credit score is to develop methods of credit risk management. For this, you will also need to understand the concept of credit rating and credit reports as well.
Why is credit rating important for real-time credit scores?
The credit rating and credit report are pieces of a financial snapshot that help an individual showcase himself/herself to the business world. This plays a big role while availing for loans, renting apartments and much more. Even things like getting hired at a job or making big-ticket purchases are parts of your financial history. If maintained properly, these things can help improve the real-time credit score.
While applying for a loan, the credit rating plays an equal part in credit score. It is the credit rating that determines whether you are eligible to get a loan or not. Even the probability of the individual in repaying the loan depends on this credit rating. In case there is any error related to the credit rating, the bureaus can be informed about it and changed accordingly.
What is the real-time credit score made of?
When the lender lends you money, information is sent to the bureau about it. This information consists of all the details regarding the borrowing of money, starting with the time, the rate of interest, etc. All these details make up the credit rating. After the report is made, it is then transferred to the bureaus as proof. This report also includes the credit history which is added by the bureaus. A good credit rating also accounts for financial inclusion in India.
The credit rating is based on 5 different factors:
· On-time payment history
· Credit utilization ratio
· Length of credit history
· Credit mix — types of credit available
· Frequency of applications for new credit
Further, maintaining a low utilization ratio, not having enough balance on credit cards, having a long credit history and applying for credit cards constantly can undermine the credit ratings of an individual. Thus, applying methods for credit risk management is also essential in these cases.
Ways to improve credit rating
By maintaining good credit, you can also account for financial inclusion in India. Having a poor credit score must be improved so that you can have a good standard of living. Any negative information owned by the credit bureaus should fall off within seven days from the credit report.
Given below is a list of the way that can help you improve your credit rating.
· Paying the right amount of loans at the right time
· Do not overextend your credit. Sometimes, the free credit cards that arrive by mail can temp. But using such cards won’t help improve real-time credits core.
· Try to pay overdue bills. In case there are any problems, you can contact a creditor to make repayment arrangements.
· The type of credit you own can also affect your credit score. Even taking credit from financial companies can also negatively affect your score.
· Try to keep the outstanding debt as low as possible. If the limit is lowered continuously, it will affect your credit rating.
· Do not try to apply for a lot of credit applications together. If you see a message saying ‘hit’, it can also have a negative impact on the credit rating.
