- Your credit history is not only about your credit score!
- But it also talks about your repayment track, the extent of credit utilization, etc. - Read this post to know more
When a loan or credit card application comes, the first thing that the lender sees is your credit history. The history, which consists of your credit score and repayment track, helps lenders decide the eligibility of applicants for different credits. So, if you are paying a loan or credit card for at least 6 months to a year, you will have a credit score within 300 to 900. Credit bureaus such as CIBIL, Experian and a few others assign you a score based on your repayment track, which will include the schedule of payments, the extent of credit limit utilization, etc.
So, if your credit record is not old, you should know how to bolster it further. It will help you gain easy access to credits in the future, unlike those who struggle to get the same with a poor credit history. We will tell you the tips to maintain a good credit history and brief you on the credit errors you should not commit. Let’s read the post further to know all.
What Makes a Good Credit History?
The credit history becomes good when you pay the loan EMI or credit card bill on time, have a perfect credit mix, etc. Let’s read about these aspects in detail.
Pay Loan EMI/Credit Card Bill on Time
Your payment history holds the key to the score and credit history you will have. For a good credit history, look to pay your loan EMI/credit card bill on time. You need to redefine your income too to ensure the same. Consider the money you are left with after paying the dues as your income and live your life accordingly. This will ensure timely payments and boost your credit history.
Show Discretion When Spending with a Credit Card
Show discretion when spending with a credit card; spend what you can afford and not what you are not allowed to. Go through the spending you make with a credit card carefully. You might find some expenses unnecessary and stop doing so for your own good. And when you have loan payments to make in addition to credit card dues, the spending style advised above will only ensure timely payment of both and boost your credit history.
Fix Your Credit Card and Non-Credit Card Spending Limits
It’s an addition to the previous point where we talked on how to approach credit card spending. But here, you will get a complete picture when we discuss spending based on your income. While keeping a lid on credit card purchases is necessary, doing the spending based on your income will make it even better for you. Also, you could be spending other than from a credit card. You should thus maintain both credit card and non-credit card spending based on your income. Trust us, you will pay the dues on time and ensure a good credit history.
Maintain an Effective Credit Mix
When you have multiple credits in your name, the term ‘Credit Mix’ comes into the picture. Ideally, you should not have a higher proportion of unsecured credits. But having so does not mean a drop in a credit score or a poor credit history. Just maintain discipline and ensure the payment of all debts. Else the score could dip faster since your credit mix has more unsecured credits.
Times When Credit History Becomes Bad
Committing credit mistakes and not correcting them soon will only worsen your credit history, making you ineligible for future credits. The mistakes include defaulting on loan or credit card payments, making frequent credit applications despite rejections, etc. Let’s talk about these in detail.
Default on Loan/Credit Card Payments
When you don’t pay your loan or credit card dues despite repeated intimations from the lender asking you to do so, you are tagged as ‘Defaulter’. This will decrease your credit score and worsen your credit history. But the problem won’t stop here, it will compound depending on the credit where you have gone wrong. If you default on home loan payments, you will lose a home that you would have bought after making so many sacrifices. But you will face legal complications if you default on personal loans and credit cards.
Making Frequent Credit Applications Despite Rejections
Credit score comes down sharply when you keep applying for credits despite facing rejections from the lender. It can impact your credit history too. When you apply, lenders make a hard credit enquiry, which remains in your credit report for as long as 2 years. Imagine when multiple hard credit enquiries (all those leading to rejections) remain in your report for that long, how poor your credit history will become. So, instead of applying frequently, you should know the reasons for rejections by checking the credit report. The reasons can be other than payment issues too.
Closure of Old Credit Card Account
Having multiple credit cards is very common these days, and people love to shop with each of them and maximize rewards. But there comes a time when one wants to close one of the credit card accounts to ease the debt burden. Often people close their oldest credit card account and get their credit score reduced unknowingly. The length of credit also contributes to your credit score; so if you close the oldest credit card, the overall credit length will reduce and so will your score.
Plus, the Credit Utilization Ratio will go up by closing the credit card account. The ratio is obtained by adding the outstanding balance of each credit card and dividing the resultant sum by the number of cards. So, when you close any of your credit cards, the ratio will go up. Credit bureaus don’t see it positively and thus cut the credit score by some points. This can impact your credit history for a while; but by paying dues of other credit cards, you can recover the lost points.
What If You Have No Credit History?
Don’t think you can’t access loans without a credit history. You can get secured loans like home loans, loans against fixed deposits, loans against property, gold loans without a credit history. You can even get personal loans and credit cards from a bank where you have a salary or savings account for a long time.