Paying off debt is vital to maintain a good credit score. However, it is a responsible financial management that leads to a good CIBIL score.
Therefore, a borrower must take some steps to ensure that credit score stays healthy and sound. These steps include monitoring your credit report from time to time, timely bill payments, keeping low credit utilisation, and maintaining a good credit mix, among others.
These are the six steps to follow:
Timely payments of bill: Needless to say that one should pay all bills, including loans, credit cards, utility bills, and other financial obligations on time. Payment history is a significant factor in determining your credit score. Even a single missed or late payment can negatively impact your score.
Keep low credit utilisation: Maintain a low credit utilisation ratio by not using too much of your available credit. Ideally, keep your credit card balances well below your credit limits. High credit utilisation can signal to lenders that you may be overextended financially, which can lower your credit score.
ALSO READ: How do student loans influence your credit score?
Hard inquiry: Be cautious when applying for new credit accounts. Each new credit application results in a hard inquiry on your credit report, which can temporarily lower your credit score.
Only apply for credit when necessary and avoid opening multiple accounts within a short period.
Credit mix: If you have only one type of credit account, consider diversifying your credit mix. Having a mix of instalment loans (like personal loans or auto loans) and revolving credit (like credit cards) can positively impact your credit score, as long as you manage them responsibly.
Old accounts: Maintain your old credit accounts even after paying off the debt, especially if they have a long history of on-time payments. Closing old accounts can shorten your credit history, which may lower your score.
ALSO READ: Closing old credit accounts? Here are 4 ways in which it can impact your CIBIL score
Reviewing credit score: It is vital to monitor CIBIL score regularly to track your progress and identify any changes. Many financial institutions and credit bureaus offer free access to credit scores, allowing you to stay informed about your credit health.
By following these steps and practicing responsible financial habits, you can maintain a good CIBIL score even after paying off debt. Consistency and diligence in managing your finances are key to long-term credit health.
Frequently Asked Questions:
Why is it important to pay bills on time?
Payment history is a significant factor in determining your credit score. Even a single missed or late payment can negatively impact your score.
Is payment of debt enough to maintain a good CIBIL score?
Paying off debt is indispensable to maintain a good credit score. However, it is a responsible financial management that leads to a good CIBIL score.
How does hard inquiry impact your CIBIL score?
Each new credit application results in a hard inquiry on your credit report, which can temporarily lower your credit score.
How does keeping old accounts open help in maintaining good credit score?
Closing old accounts can shorten your credit history, which may lower your score. So, one might as well keep them open.
How does reviewing credit score help?
It is vital to monitor CIBIL score regularly to track your progress and identify any changes.
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Published: 13 Mar 2024, 07:42 PM IST