Your credit score is a critical factor in determining your financial health and overall creditworthiness. Credit scores usually range from 300 to 900. A higher score of 700 and above indicates a better credit history. Lenders generally consider a high credit score of 750 and above as excellent for borrowers. If you want to know how to improve your credit score, there are several proven ways to do so.
How to Improve Credit Score?
A credit score is a numeric description of your creditworthiness and is calculated based on your credit history. Credit Bureaus like CIBIL, Experian, etc. provide credit reports to financial institutions to determine the creditworthiness of a borrower. A good credit score can play a significant role in helping you find the best loan offers at attractive interest rates and better loan terms. Let’s check out how you can improve your credit or CIBIL score:
- Pay Your Bills on Time – Your payment history is one of the most important factors that can help in determining your credit score. Paying your bills on time is the easiest way to improve your credit score. Late payments can stay on your credit report for up to seven years, which can significantly impact your credit score.
To ensure timely payments, it is best to set up automatic payments for your credit card bills and loans. This way, you won’t have to worry about missing a payment, and your credit score will continue to improve.
- Keep Your Credit Utilization Low – Credit utilization or credit utilization ratio refers to the amount of credit used by you compared to your credit limit. Ideally, your credit utilisation should be up to 30%. For instance, if you have a credit limit of ₹50,000, you should try to keep your balance below ₹15,000.
A high credit utilization ratio can negatively impact your credit score, as it suggests that you’re relying heavily on credit. Try to pay off your credit card balances in full each month to keep your credit utilization low. If you can’t pay off the full balance, aim to keep your balance as low as possible.
- Check Your Credit Report Regularly – Your credit report contains information about your credit history, including your payment history, credit utilization, and credit inquiries. Check your credit report regularly to make sure that all the information provided by you is accurate.
If you notice any errors or discrepancies, report them to the credit bureau immediately. Any incorrect information on your credit report can negatively impact your credit score, so it’s crucial to ensure that all the information is correct.
- Avoid Opening Too Many Credit Accounts – Opening too many credit accounts within a short period can negatively impact your credit score. Each time you apply for credit, it results in a hard inquiry on your credit report, which can bring down your score.
To avoid this, only apply for credit when you need it and avoid opening multiple accounts at once. Additionally, closing credit accounts can also negatively impact your credit score, so it’s best to keep them open unless there’s a compelling reason to close them.
- Diversify Your Credit Mix – Having a mix of different types of credit can improve your credit score. For instance, if you only have credit card debt, adding a Personal Loan can diversify your credit mix.
Having different types of credit shows that you can manage different types of debt responsibly. However, it’s essential to ensure that you can afford to take on new debt before applying for a new loan.
- Keep Your Credit Accounts Active – Inactive credit accounts can negatively impact your credit score, as they don’t show any recent activity. If you have credit accounts that you don’t use regularly, make sure to use them occasionally to keep them active.
However, it’s essential to ensure that you’re not overspending on these accounts and that you can pay them off in full each month.
While improving your credit score is a continuous process that can seem like too much work, it’s worth it. A higher credit score can lead to better interest rates on loans and credit cards, making it easier to manage your finances. By following these proven ways to improve your credit score, you can maximize your credit potential and achieve your financial goals without any hassle.