How to increase your credit score? There are more ways than one through which you can improve your credit score. And that’s exactly what we’re going to be looking at in this article. But before we go ahead, let’s first take a look at what is considered as a good credit score in India.
In India, the credit score is a 3-digit number ranging from 300 to 900. And anything above 700 is considered to be a good enough credit score for most banks and financial institutions. Individuals with a score of above 700 are viewed very positively and tend to get loans and credit facilities at attractive terms.
However, if you’re someone whose score is below 700, you may want to know how to increase your credit score. Here’s a quick look at a few ways through which you can achieve this.
There are 5 different ways through which you can boost your credit score. Let’s take a look at a brief overview of each one.
One of the best and fastest ways to improve your credit score is to pay all of your debt obligations in full within the due date. Credit Information Companies (CICs), who are responsible for assigning credit scores to individuals and companies, view consistent and regular on-time payments favourably.
If you haven’t been paying your dues diligently or have only been making partial or minimum due payments consistently, now is the perfect time to set things right. And if you’re someone who has the tendency to forget to pay their bills, consider setting up a reminder for each loan obligation separately.
Alternatively, activating an auto-payment mandate or setting up a standing instruction on your bank account can also help set things right. Remember, even a single missed payment can lead to a huge drop in your credit score.
Another major thing that you can do to improve your credit score is by ensuring that you don’t overuse revolving credit facilities like credit cards. Your credit utilisation ratio is represented as a percentage and indicates the amount of credit that’s currently used up out of your total available credit limit. The higher the credit utilisation percentage, the lower your credit score is likely to be.
So, if you’re a credit card user, it might be a good idea to check just how much you have used up. You can do this by following either of these two ways - by logging into your credit card accounts or by checking your credit report. And if you find that your credit utilisation percentage is anything above 50%, you should look into ways to reduce your utilisation.
One way through which you can do this is by reducing your spending. Secondly, if you have any credit card loans, you can pay them off to lower your utilisation. And finally, you can also try to increase your credit limit by reaching out to your credit card provider.
Ideally, having a credit utilisation ratio of not more than 30% can do wonders to your credit score. So, keep that in mind.
This is something that not many ‘how to improve your credit score’ guides will tell you. If you’re an individual who has a few unused credit cards under your belt, don’t deactivate them, especially if they have a long credit history or a good repayment track record. Doing so will remove them from your credit report along with any credit history that you might have created by using those cards.
Instead, consider putting your unused credit cards to use periodically. This will ensure that they remain active and can help lengthen your credit history. That said, remember to pay your credit card outstanding on time. Having a lengthy credit history and an exceptional track record of repayment can improve your credit score and make you more favourable in the eyes of a financial institution.
Now, when you apply for a loan or a credit facility, financial institutions typically look into your credit score and history by making an inquiry. These kinds of inquiries are known as hard inquiries and can end up reducing your credit score, especially if there are multiple such hard inquiries in a short period of time.
Therefore, if you’re in need of a loan, it is advisable to refrain from making multiple applications in quick succession. This will protect your credit score from the negative effects of multiple hard inquiries. Also, if you’ve recently been rejected for a loan application, don’t apply for another one right away. Instead, wait for a few months and work on the reason for the rejection.
Now that you’ve seen how to increase your credit score by limiting the number of hard inquiries, you’re probably wondering whether checking your own score has a negative impact as well, right? Fortunately, no. When you check your own credit score and history, such inquiries are termed as soft inquiries and don’t leave any negative impact.
Just like how investment portfolio diversification can have a positive impact on your finances, opting for diverse credit facilities can improve your credit score. One way to diversify your credit is by having a good mix of secured and unsecured loan facilities. And while you’re at it, opt for both long and short-term loans as well.
Credit Information Companies give significant weightage to a good credit mix. So, if you’re someone who only has credit cards, consider taking out a personal loan to satisfy your funding requirements. Possessing a good mix of different credit facilities can quickly have a positive effect on your credit score.
Keep in mind that these aren’t the only ways to boost your score. There are other ways to achieve that as well. But then, following these 5 ways mentioned above should do more than enough to get your credit score up.
Also, here’s something that you must know. It is a good idea to check your credit score and review your credit report periodically. Doing this can bring discrepancies to your notice in a timely manner, allowing you to tackle them before they leave a lasting negative impact on your score.
No. Spending more doesn’t have any direct effect on your credit score. But if you end up spending more than 30% of the credit limit, your credit score may be negatively impacted due to a high credit utilisation ratio.
On the other hand, paying your outstanding loan obligations on time can quickly and effectively help you increase your credit score.
The time it takes for your credit score to increase primarily depends on the steps that you take to rebuild it. Some ways such as availing of a new credit facility and lowering your credit utilisation percentage can have a quick positive impact on your score. However, others like paying your outstanding bills on time can take a few months of time to have a good impact on your credit score.
Yes, getting a new credit card can reduce your credit score by a few points, but this isn't permanent and you can expect your credit score to bounce back by six months.
Here are some ways to boost your credit score growth -
a. Reduce your credit utilisation rate
b. Increase your credit limit
c. Clear all your outstanding debt, and ask late payment forgiveness if any
d. Go through your reports for any errors and get them rectified
e. Pay your utility and internet bills using your credit card
f. Dispute on errors and ask to remove negative entries that you have cleared from your report