Crucial Ways to Improve or Maintain Your Credit Score

A credit score range between 300 and 900, wherein a score of 750 and above is often considered favourable by lenders and issuers for approving your credit application. Apart from enhancing your credit approval chances, a strong credit score also assists you in fetching lower interest rates on loans, reduction or waiver on loan processing charges and preapproved credit card and loan offers. Also, a few sectors are slowly picking up the trend of factoring in credit scores for evaluating your job application.

As your credit score plays an important role in getting your credit application approved, it is important for you to keep a check on your score and take timely measures to maintain or improve it. Out of all the 4, credit rating agencies in India, namely – CIBIL, Experian, CRIF Highmark and Equifax, CIBIL’s credit score is given the maximum weightage by the lenders for deciding loan approval chances. 

Check out important credit habits that can help you to improve or maintain a strong CIBIL score –

Make timely credit card dues and loan EMI repayments –

Financial institutions generally prefer approving your credit application for a loan or credit card if you show a disciplined repayment history. Note that when computing your CIBIL score, CIBIL too gives high weightage to your credit repayment history. Irregularities like delayed or missed loan EMI or credit card bill repayments are recorded in your CIBIL report for a substantial time period, which not just negatively affects your CIBIL score but even lowers your chances of securing a credit card or loan approval. Thus, you must ensure to repay your credit card bills and loan EMIs timely and in full. Doing so will gradually help in improving or building your score, which in turn would enhance your eligibility chances for credits in the future.

Maintain a CUR (credit utilization ratio) of within 30 per cent –

CUR refers to the proportion of the overall credit limit utilized by you against the available credit card limit. For instance, if your overall credit card limit is Rs 2 lakh and you have utilized Rs 40,000, then the CUR would be 20 per cent. This ratio is considered one of the important parameters for determining your CIBIL score. CUR of within 30 per cent is advised as this margin shows your disciplined credit behaviour and even that you are not heavily dependent on credit. 

On the contrary, if your CUR crosses the 30 per cent mark, financial institutions may consider your credit profile risky and may hesitate to approve your credit application. Also, CIBIL lowers your score if you breach this recommended limit constantly. Thus, you must ensure to keep your CUR within 30 per cent to avoid any damage to your score. In case you tend to breach this ratio frequently, either request for your card issuer to enhance your credit card limit or take up an additional credit card. Doing this would increase your overall credit card limit, which would reduce your CUR.

Review your credit report at regular intervals –

Whenever you place an application for a loan or credit card, a financial institution checks your creditworthiness by evaluating your CIBIL report. Your report contains a detailed summary of all your past credit records, current credit card and loans, due payments etc., using which CIBIL assigns your score. As your credit details are reviewed by the CIBIL for setting your credit score, any incorrect detail or clerical issue or wrong transaction in your name may make the bureau assign a lower score. Thus, you must ensure to periodically review your report to identify any errors and frauds to timely get them corrected. Timely correction can automatically enhance your score.

Avoid making multiple direct credit inquiries –

Whenever you place a credit application, the concerned financial institution approaches CIBIL to fetch your credit

Report to evaluate your repayment behaviour, credit score, and credibility. This lender-initiated request for the CIBIL report is called a hard enquiry, which gets mentioned on your report, for which CIBIL also lowers a few points from your score. Making multiple such inquiries in a short period of time can be disastrous, as this not just reduces your CIBIL score substantially but also makes you appear credit hungry, which discourages financial institutions from approving your credit application.

Thus, always approach online financial markets to compare amongst suitable financial institutions as per your eligibility and then place an application. Credit report inquiries by such online portals are soft inquiries which do not impact your CIBIL score in any way.

Report discrepancies in your report

Note that no system is completely perfect, and it is 100% possible that even with disciplined credit behaviour on your side, a single error in your report can impact your score. It is thoroughly necessary to check your CIBIL report periodically, as doing so would assist you in locating a dispute or any errors instantly. By knowing such disputes, you instantly raise a query to the concerned bureau and get it resolved instantly. 

Aim for a balanced mix of credit

A mix of distinct credit products is an essential ranking parameter not only in computing your score but even in ameliorating your score and forming a strong credit history. There can be a mix of unsecured and secured loans, lines of credit, credit cards and others. This endows an indication of your potential to manage the credit responsibly and with more stability. 

Retain your older credit cards

Your credit history length is an important factor or parameter deciding your score. As your income enhances and you get older, there is a higher tendency to place an application for a high-end credit card and give up the previous ones by closing your credit card accounts. However, this can impact your score negatively. 

Even if you place an application for new or additional credit cards, hold on to your oldest credit card, as this will keep your length of credit history long, which indirectly will allow you to have a higher credit score.