Having a good credit score is essential for anyone looking to obtain credit. A credit score is a 3-digit representation of your creditworthiness, and it is a reflection of your ability to repay your debts. India’s credit scores range from 300 to 900, and a score of 750 or higher is considered good. A high credit score can help you secure lower interest rates and better loan terms, while a low score can make it difficult to obtain credit. Here are 15 actionable tips to improve your credit score in the Indian context.
- Check your credit report regularly
First, it is essential to review your credit report regularly to ensure that it’s accurate and up to date. You can obtain a free credit report from the major credit bureaus in India for free once a year. Check your credit report on a regular basis and identify if there are errors or mistakes in it.
- Dispute errors on your credit report
If you notice any errors or inaccuracies on your credit report, contact the credit bureau to dispute them. Credit bureaus are legally bound to investigate disputes and correct them if there are any errors.
- Always pay your bills on time
Paying your bills on time is the most critical factor in maintaining a good credit score. Late payments can significantly damage your credit score and make you pay more in terms of penalties and late charges, so make sure to pay all of your bills in full – loan EMIs, and credit card bills or EMIs. This shows financial discipline and helps you to show responsible behaviour.
- Reduce your credit utilization ratio
Your credit utilization ratio is the amount of credit you have consumed in comparison to the total amount of credit available to you. Aim to keep your credit utilization ratio below 30% to maintain a good credit score. If the credit limit mentioned on your credit card statement is Rs. 100,000, try to keep your outstanding balance below Rs. 33,000. You can also try to increase your credit limit using the offer from the banks, which helps you keep a low credit utilization ratio.
- Maintain a healthy mix of credit
Having a diverse mix of credit types, such as credit cards and loans – secured and unsecured, can demonstrate responsible borrowing behaviour and improve your credit score. However, make sure to only take on credit that you can afford to repay.
- Avoid applying for multiple credit at once
Applying for multiple lines of credit in a short period can be a red flag to lenders and may negatively impact your credit score. Lenders may see this as a sign that you’re taking on too much debt and may be unable to repay it.
- Keep old credit accounts open
Credit history is one of the major factors in determining credit scores. Closing credit card accounts can cause credit scores to come down since it breaks the credit history chain, so keeping your old credit card accounts open can help in improving your credit score, even if you’re not actively using those cards.
- Use your credit cards responsibly
Credit cards can be a valuable tool for building credit but can also be dangerous if not used responsibly. Avoid maxing out your credit cards, and make sure to pay your balance in full each month to maintain a good credit score.
- Set up automatic payments
Setting up automatic payments for your bills can help ensure that you never miss a payment and can improve your credit score over time. Most lenders and credit card companies offer automatic payment options.
- Maintain a stable income
Having a steady income and employment history can demonstrate financial stability to lenders and improve your credit score. Lenders want to see that you have a steady source of income and are likely to repay your debts on time.
- Limit credit inquiries
Every time you apply for credit, the lender will pull your credit report, which is called a credit inquiry. Avoid allowing too many credit inquiries on your credit report, as this can be a red flag to lenders. Each inquiry can negatively impact your credit score.
- Pay off loans
Paying off debt can help improve your credit score by reducing your credit utilization ratio and demonstrating responsible borrowing behaviour. Make a plan to pay off your debts, starting with high-interest loans or credits, and make sure to pay at least the minimum payment on all of your debts.
- Never default on loans
Not paying your loan EMI on time can have a significant negative impact on your credit score. If you’re struggling to make payments, contact your lender to see if you can work out a payment plan or loan modification.
- Seek professional advice
If you’re struggling to improve your credit score, seek professional advice from a qualified credit counsellor or financial advisor. They can provide guidance on how to manage your finances better in the existing condition and improve your credit score.
- Discipline and patience
There are no shortcuts here, improving your credit score takes time and It’s important to be patient and continue practicing responsible financial behaviour. Once you practice this, over time, your credit score will improve, and you’ll be able to access better credit terms and interest rates.
Improving your credit score requires consistent effort and responsible borrowing behaviour. By following these 15 actionable tips, you can improve your credit score and access better credit terms and interest rates. Remember to check your credit report regularly, pay your bills on time, reduce your credit utilization ratio, maintain a healthy mix of credit, avoid applying for too much credit at once, keep old credit card accounts open, use your credit cards responsibly, set up automatic payments, dispute errors on your credit report, maintain a stable income, limit credit inquiries, pay off debt, avoid defaulting on loans, seek professional advice, and be patient. With time, effort, and dedication, you can improve your credit score and achieve your financial goals.