Improving your credit score on a low income can seem daunting, especially when access to credit facilities vary significantly. However, with strategic planning and disciplined financial habits, individuals can enhance their creditworthiness and open doors to better financial opportunities.
Understanding credit scores
Credit scores typically range from 300 to 900, and anything above 750 is considered excellent. The score is calculated based on your credit history, including loan repayments, credit card usage, and overall debt management. While a higher income can make it easier to manage debt, it is not the only factor that matters.
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“Improving your credit score on a low income is achievable with the right approach. There are certain simple steps like prioritising timely payments for your credit card bills loan and keeping the credit utilisation modest, ideally under 40 per cent. Users should keep a proper track of their credit products if they have multiple credit products, and ensure to pay them off in time,” said Prashant Kumar at Founder of Kredit.pe.
Strategies to improve credit score on low income:
Do a credit health check
The first step is to know where you stand. Get a free credit report from CIBIL or other credit bureaus.
Make timely payments
If you have any loan, make timely payments as payment history is the most significant factor affecting your credit score. Setting up automatic payments for bills or using reminders can help ensure you never miss a due date.
Consider secured credit cards
For those struggling to obtain standard credit cards, secured credit cards are an excellent option. These cards require a cash deposit that serves as your credit limit. By using a secured card responsibly and making small purchases and paying them off monthly, you can gradually build your credit history.
Limit new credit applications
Every time you apply for new credit, it results in a hard inquiry on your report, which can temporarily lower your score. Be judicious about applying for new accounts, instead, focus on managing existing ones effectively.
Diversify your credit mix
Though it may appear illogical, maintaining a variety of credit types can improve your credit score. This might involve a mix of credit cards, personal loans, and possibly a small secured loan.
Explore peer-to-peer lending
Peer-to-peer lending platforms allow individuals to borrow money directly from other individuals instead of traditional banks. These loans often come with competitive interest rates and shorter repayment terms, making them an attractive option for those looking to establish or improve their credit without relying solely on conventional methods.