Credit Score Improvement: Good salary hike is often a financial breakthrough for people. This increases their strength to spend, improves lifestyle and makes money management easier. But, does this increased earnings also have a positive impact on your credit score?
Let us understand from experts whether the credit score is affected by salary hike. Also, which factor has the most impact on the credit score.
Credit score on financial habits?
The credit score assesses how you have handled your credit in the past. This means whether you have paid loans and credit cards on time, how much part of the credit limit, and what kind of loans you have taken.
According to Crif High Mark Chairman and Regional MD of Crif India & South Asia, Sachin Seth, “Credit Bureau focuses on pre -credit behavior, not on the current income, not on the current income. Income is not part of the scoring model.”
Salary Hike’s indirect effect
Even though your earnings are not directly part of the credit score, its indirect effect can be very important. Salary hike increases your ability to be disciplined with money. This causes the credit repayment on time, which directly affects the score.
ZET’s co-founder and CEO Manish Shara calls it ‘financial fuel’. He says, “Salary hike is a kind of financial fuel. It helps people to repay the debt quickly, reduce dependence on credit and fill the EMI on time.”
Credit score may increase by 30-70 points
According to Minemi’s CFO Siddharth Jain, there are many users who managed the loan in an active manner after increasing the salary. This saw an increase of 30 to 70 points in his score in just 6-8 months. He said, “After the salary hike, if the person shows activeness in the loan management, then the credit score has seen a improvement of 30 to 70 points in 6–8 months.”
Jain said that more income reduces credit utilization. The debt is repaid quickly, and the balance of secure-unusual loans is improved. All these things together make the credit profile strong.
More income is not guaranteed good score
According to Zavo’s founder Kundan Shahi, “Having an excess income does not guarantee good score. A person with low income can also keep a good score, while more earner can be a weak score if not disciplined.”
Salary hike does not increase the credit score in itself, but it gives you a chance to adopt a better financial discipline. If this opportunity is used properly, such as filling EMI on time, repayment of debt quickly and using less credit than limit, then its effect can be clearly visible on your score.
Also read: Credit Card: How to increase the limit of credit card, what are its advantages and disadvantages; Understand in 5 points