Personal finance tips for women with low credit score

The credit score is three digit number computed by credit bureaus to determine your credit-worthiness. It has not only become one of the major factors considered while evaluating credit applications but has been increasingly adopted as a parameter for background checks by employers.

However, despite making their presence felt in different spheres of life, women often end up mismanaging their finances and debts.

This could lead to a downfall in their credit score and have serious implications on their borrowing capability at the time of need. Women can improve their credit score by following the tips given below.

Ensure consistent and timely payments of loans and credit card bills

While evaluating your credit score, credit bureaus take into consideration your debt repayment history in order to understand your credit repayment behaviour.

Hence, it is important for you to ensure timely repayment of your outstanding credit – be it loan EMI or credit card bills. Judicious use of credit cards for daily spends, timely and full repayment of bills would steadily improve your credit score, without incurring any interest.

Avoid multiple direct applications for loan or credit cards

Whenever you apply for a loan or credit card, the lender would pull out your credit records from credit bureaus. Such lender-initiated credit enquiries for your credit report are considered as hard enquiries.

Too many of these enquiries within a short span of time would portray you as credit hungry person, thereby reducing/damaging your credit score.

Hence, avoid making multiple loan enquiries with different lenders at the same time. Instead, visit online financial marketplace for comparing between various options. These platforms also allow you to fetch a credit report for free, and credit enquiries done through them are treated as soft enquiries, which does not reflect in your credit report or score.

Periodically review your credit score and report for discrepancies

A credit score is one of the major factors that lenders take into consideration while evaluating your credit application. Therefore, it’s prudent to keep reviewing your credit report periodically, to prevent/rectify errors that may pull down your score.

Be mindful of any clerical error on the lender or credit bureau’s part (such as not reporting your credit payment or account closure), or possible identity theft while checking your report.

Bring down your credit utilisation ratio to 30-40%

Credit utilisation ratio refers to the proportion of total outstanding credit card balance amount against the total credit limit available to you. Many borrowers end up damaging their credit score by utilising a higher proportion of overall credit limit. Women who are responsible for managing both personal as well as household expenses, usually end up with a higher credit utilisation ratio.

Credit bureaus often pull down the credit score of such individuals, since they consider higher credit utilisation ratio as a sign of credit-hungriness; and the likelihood of defaulting in future is more in such cases as compared to individuals who have been managing their credit cards judiciously.

If you frequently breach this 30–40% mark, request your credit card issuer to increase your credit limit or consider availing another credit card to bring down overall credit utilisation ratio.

Monitor guaranteed loans

When you choose to become a guarantor, jointly borrow or co-sign a loan; you become equally responsible for repaying the debt. In case the primary applicant misses any payment or defaults, your credit report would also be adversely affected, along with that of the defaulter.

Therefore, make sure you keep a track of such credit accounts, as the primary borrower’s repayment behaviour may be the reason behind your score’s downfall. Until your credit score improves or becomes strong enough, avoid volunteering as loan guarantor or co-signer.

( The writer is Chief Products Officer from Paisabazaar.com)