How to Increase Your Credit Score in India

Increase Your Credit Score

Credit scores are possibly the most critical financial digits that come into play when one wants to avail loans or credit cards, and also when determining the rate of interest lenders are willing to grant to them. The higher your credit score, the more access to Finance you will have; the lower your score, the more likely your loan or credit card application will be turned down altogether, or you will be charged higher interest rates. So, if you are really thinking of improving your credit score, you are at the right place here. This article covers all the essential things you would like to know about how to increase credit score in India.

Understanding Credit Scores

Before we go ahead with the tips, let us understand the meaning of a credit score. In India, the credit score is derived from credit bureaus, namely CIBIL, Experian, and Equifax. A credit score is a number ranging anywhere between 300 and 900. Out of these scores, 900 is the highest that can be reported, so a higher score means you are more likely to be evaluated by lenders as being financially reliable. In India, the CIBIL score is the most commonly used score, while probably a higher percentile in rating would be Experian.

The score is calculated based on factors such as loan repayment history, credit card usage and overall financial behaviour.

Factors Affecting Credit Score

There are a number of important factors that affect your credit score, and understanding them can help you improve your score gradually over time: 

1. Payment history: This is the most important factor when weighing your credit score against other criteria. A person’s score improves if, for example, they always pay their loans and credit cards on time; delays, defaults, or missed payments usually cause dramatic drops in the value of their score. 
2. Credit Utilisation Ratio: This is the amount of your credit limit that is available to you. A higher utilisation ratio can indicate over-reliance on credit, which often damages credit scores. Experts usually recommend that you keep this ratio lower than 30%.
3. Length of Credit History: The longer your credit history, the best it is. You have shown lenders that you are accustomed to handling your credit well. 
4. Credit Mix: The credit score improves with the combination of secured and unsecured credit (e.g., loans and credit cards). It justifies the fact that one can handle different credits in a responsible manner. 
5. Number of Enquiries: There is an inquiry to your credit report every time you apply for a loan or credit card. Multiple inquiries in a short span of time adversely affect your score, as they may indicate desperation or instability at that time.
   

Tips to Boost Credit Score in India

Here, all have come to understand the factors; now let’s see tips for boosting or increasing a credit score. These practical steps can quickly improve credit scores and maintain them over time.

1. Pay Your EMIS on Time

Very crucial is the timely payment of your EMIS towards a good credit score. Whether it’s a home loan, an individual loan, or a car loan, timely EMI payment is the backbone for this score. But in the case of your late payment history, one should try to overcome this habit. Setting reminders for automated payments could do away with missed deadlines.

Example: Suppose there is an ongoing personal loan for which you need to pay an EMI. Even if it is a small amount, making sure you never miss a payment will actually improve your score on credit score over time.

2. Reduce Credit Card Utilisation

One of the easiest and simplest tips for reducing the credit utilisation ratio is to use less of your credit cards. Ideally, you should be at least 30% of the total consumer’s consumption outside the limit. If you are constantly maxed out on your credit card, then lenders might see you as a high-risk borrower.

Example: If your card limit is about one lakh, do not spend more than thirty thousand at any particular moment. Also, make it a point to clear the amount at the end of every month. These two things may do wonders for your credit score.

3. Regularly Check Your Credit Report

By and large, checking your score online in India will be a must for every healthy score. Monitor it on a continuous basis because there could be chances of a discrepancy or error somewhere. In the unfortunate event that you find any incorrect information, you must dispute errors in credit reports immediately.

Example: Imagine you find a loan entry, but know you never took a loan. In this case, reporting to credit bureaus will affect your score. Continuous monitoring of your credit score makes it easy to catch any of these mistakes as they happen.

4. Timely Payment of Loan Repayments

any type of loan: house loan, vehicle loan, or personal loan, the history of repayments has always been crucial to improving your score. Missed deadlines for repayment of loans will only mess up your score and make it very hard for you to get future approvals.

Example: If you cannot pay the full amount, talk to your lender about a new payment plan or get a No Objection Certificate loan (NOC) when the loan is paid off.

5. Multiple Loan Inquiries Should Be Avoided 

When you apply for a loan or credit card, a lender performs a hard inquiry into your credit report. If you apply for multiple loans or credit cards within a short period, it can negatively affect your score. This shows lenders that you might be running into financial difficulty and are looking for credit to cover your expenses.

Example: If you applied for two to three credit cards within the same month and they all ended up as hard inquiries, your score would definitely go down. Space out your applications and apply for credit only when necessary. 

6. Diversifying Your Credit Mix

A good score can be achieved by maintaining a balanced mix of secured and unsecured credit. Credit mix for a better score means having both loans (home, personal, etc.) and revolving credit (like e).

Best Ways to Improve CIBIL Score

Improving your CIBIL score takes time and work, but with consistent efforts, you will see changes. Go ahead and start implementing all the steps above-mentioned. However, if you want to boost your credit score instantly, pay off all outstanding balances, keep your credit utilisation low, and be punctual in payments.

If you want to take a personal loan, then having a good credit score is very important for it, as it will increase your chances of getting approval and avail of a low-interest rate. Most lenders require a minimum CIBIL score of 750 or above when personal loans are considered. 

Secure vs Unsecured Credit

Another important aspect to find out is whether the current credit you are using is secured or unsecured. Secured credits, such as home loans or car loans, are backed by collateral, while personal loans and credit cards are considered unsecured. A healthy mix of these can also help your credit score. For example, consider an individual who has only unsecured credit, like credit cards. Although it sounds safe, if he takes a secured loan like that for a car, that too diversifies your credit and gets reflected in the number.

Also, Check – Difference Between CIBIL Score vs Credit Score

Conclusion

Increase your credit score in India by reducing credit card usage, making EMI payments timely, and so on. By tracking one’s credit report along with disputing the errors, and keeping a healthy mix of credit, one can gradually build a credit score and eventually have better opportunities in finance.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.