Loans of all forms and shapes, right from personal loans all the way to traditional loans, are a boon for many and a curse for few. If you know anything about lending, you are well aware of the fact that the first and most important aspect any lender takes into account when you submit your loan application is your credit score, and yet a lot many of us do not take it seriously. And for this sole reason, more often than not, our credit score falls below an acceptable threshold, and we find it increasingly difficult to get our loan applications approved.
Thus in today’s article, we will share 9 tried and tested methods to help you improve your credit score in India. Let’s get started.
What Is a Credit Score?
One of the first and most important aspects we should focus our attention on is understanding the meaning of credit score. In simple words, your credit score is a numerical number that is assigned to you by the credit rating agency after taking into consideration your past credit history and performance.
In India, there are three main credit rating agencies, namely CIBIL, Experian, and CRIF. While their scoring procedure is slightly different from one another, all of them take into account the following 4 factors to assign you a score:
- The total number of loans you have taken in the past
- The total amount of credit you have accessed to date
- The total number of timely payments you made towards your credit utilization to date
- The total number of timely payments you have missed to date
After taking into account all these factors, you are generally assigned a credit score on a scale of 900, and in order to get your loan application approved quickly, you need to above a credit score of above 750.
But as we pointed out earlier, more often than not, it so happens that a lot of us don’t monitor our credit scores, and it falls below the accepted threshold. So here are 9 ways on how you can improve your credit score.
- Check Your Credit Report Regularly
The first step in the process is to check your credit report regularly. Checking your credit report regularly comes with two main advantages:
- First, you will be able to take note of the mistakes you made that brought your credit score down. This will help you understand what not to repeat in the future.
- Second, you will be able to see the banks and NBFCs who have reported the defaults, and you can reach out to them to fix the issue and improve your credit score in the future.
- Pay off Your Credit Card Debt
The second step to improve your credit score is to pay off your debts immediately. By debts in this step, we are referring to everything right from unpaid balances on credit cards all the way to EMIs due for other loans.
While this process might be difficult to execute immediately, take some time and assess all that you need to do, as paying off your existing debts will have a huge positive impact on your credit history, thus improving it by several points.
- Resolve Any Issues/Mistakes
For borrowers who are new to the system, it may sound uncommon, but in some cases, even the lender can make mistakes and report transactions that actually did not occur on your part. Although there are now automated systems to make sure that such occurrences are minimized, they do show up from time to time.
Regularly checking your report will help you identify and report these issues as and when they happen, after which you can report it to the responsible bank or NBFC, and they are liable to fix it within the next 30 days.
Fixing all underlying issues will help you improve your credit score by several points and also avoid such inaccuracies in the future by making you and the responsible party more vigilant.
- Keep Your Old Debt Reports
A common mistake that borrowers often commit is to try to get their old debt reports removed from their credit report as soon as all the EMIs are complete. While superficially, this might appear to be a logical step, you are missing the point that keeping on old debt records where you have made all the repayments on time will help you improve your credit score in the future, as it improves your creditworthiness and instills confidence in new lenders.
- Pay Your EMIs on Time
This might sound like a no-brainer, but one of the most important and yet common steps to ensure a good credit score, that borrowers often miss out on is repaying their EMIs on time.
If you are planning to make a new or big purchase in the future and you are trying to maintain a good credit score, make sure that you pay your EMIs on time at least a year leading up to the purchase. This will not only help you keep a good credit score but also make sure that you stay disciplined in the long run.
- Don’t Hint at Any Risks
In the credit lending business, missing your payments even by one day is a risk, and your lender might treat it very negatively. Thus, one of the best tried and tested ways to improve your credit score is never to do anything that might feel like a risk to the lender, and this includes paying your EMIs on time and, if possible, even before the scheduled date of repayment.
- Utilize Your Credit Limit Mindfully
When we take a credit card for the first time, most of us have the opinion that we can use the full limit available on the credit card and just pay it back on time to ensure a steady credit score. But this is only partially true.
In order to maintain a good credit score, you need to make sure that you only use upto 30% of the credit line available to you, as otherwise you will be deemed as a risky borrower.
- Increase Your Credit Limit
In continuation of the earlier point, if only spending 30% of the available credit limit is limiting for you, a good step to take is to increase your overall credit limit. This translates to the fact that your portion of 30% has just been increased, and spending only 30% of the new higher credit limit will allow you to spend more while at the same time improving your credit score in the future.
- Be Mindful of Your Joint Applicants
Sometimes it so happens that we apply for a credit line with a co-applicant to increase our credit line. While this is a good financial move, you need to make sure that your co-applicant pays all their dues on time, as a fault on either of your ends will affect both your credit scores.
Thus, when you have a co-applicant, work as a team and improve both your credit scores together.
Ending Lines
Increasing your credit score can be a long and tedious process, so have patience and take one step at a time to improve your score in the future. All the best!
