How To Increase Credit Score

Your credit score indicates your credit history based on the data retrieved from your credit reports. All banks and financial institutions analyse these credit scores before issuing a loan, to determine the creditworthiness of a borrower. Hence your credit score impacts your loan eligibility, loan interest rates and purchasing power. 

Credit Information Bureau India Ltd (CIBIL) is India’s first credit information agency that issues credit scores known as CIBIL scores to reflect an individual’s credit history. These scores range between 300 to 900 and are determined based on an individual’s re-payment behaviour, credit utilisation, debt amount, credit mix, etc. A score above 750 is considered a good score representing a good credit history and is preferred by lenders.

If you have a low credit score, you need not worry. You can increase your credit score by following some simple tips. Keep reading to know how to increase your credit score.

6 Tips to increase your credit score

Anyone looking for a loan should first check his credit report which contains credit score and details of all credit transactions. It will also reflect delayed payments towards credit cards and EMIs if any. You can easily get your credit score for free in 30 seconds using ET Money with a detailed analysis and insights from your credit report. In case of a low score, here are some tips to improve your credit score:

Regularly monitor your credit report

Keeping a check on your credit report regularly will help you find out if there are any errors. If you find any incorrect entries or unidentified transactions in your credit report, dispute the errors by visiting the official website of the credit rating agency within 30 days and getting them rectified. Note that checking your own score does not have any impact.  

Keep your credit utilisation ratio under control

The credit utilisation ratio is the percentage of credit utilised out of the available credit limit. A low credit utilisation ratio is good for your credit score. Try to maintain a credit utilisation ratio below 30% of the available credit limit. Use your credit card wisely for essential transactions only and avoid exhausting your credit card limit. You may increase your credit limit to keep your credit utilisation ratio under control but do it only if you can keep a check on your spending habits.

Make timely repayments

A delay in paying loan instalments can have a negative effect on your credit score. Hence avoid missing deadlines by setting reminders. Also always pay your credit card dues on time to avoid paying high-interest rates and maintain a good credit score. In case you are going through a financial crisis and you know that you won’t be able to pay your EMIs or dues on time, inform your lender beforehand. You can ask for an arrangement by explaining your financial situation and the lender may consider your case if you have a genuine reason.

Customise your loan repayment term

If paying a large amount as EMI every month is difficult for you, customise your repayment term for a longer duration so that you have a smaller EMI amount. This will reduce the chances of payment defaults.

Keep a check on borrowing

Too many frequent loan applications may affect your credit score as it leads to many hard enquiries. A hard enquiry is when a lender checks your credit score after receiving a loan application. Each time a lender checks your score,  the credit agency may deduct a few points because it indicates that you are trying to borrow money. Also, avoid having too many credit cards. Borrow money only when you really need to and avoid unnecessary credit to maintain a good credit score.

Maintain a good credit mix

Too many unsecured loans can negatively impact your credit score and may lead to loan application rejection. Having a mix of secured and unsecured loans is good for your credit score and also helps in maintaining a good credit history.

Conclusion

A good credit score cannot be achieved overnight. It requires patience, good use of credit and financial planning. A good score is essential not only for your credit profile but a healthy and balanced financial lifestyle. Credit is a useful tool meant to support you financially only if you manage it well and don’t go overboard.