Boosting your credit score: A guide for Indians
What's the story
A healthy credit score is key to getting loans and credit cards with the best terms. In the US, scores are determined by bureaus such as CIBIL, Experian, and Equifax, and they range from 300 to 900. Anything above 750 is deemed good. While boosting your credit score might feel overwhelming, it's totally doable with the right game plan. Read on for practical tips to raise your credit score game.
Punctuality
Timely bill payments
The most straightforward way to improve your credit score is by ensuring that all your bills are paid promptly. Late bill payments can drastically damage your score. To prevent forgetting a due date, you may want to set up payment reminders or automate your payments. A single late payment can lead to a significant drop in your score, so it's crucial to be proactive and prioritize punctuality in bill payment.
Balance
Maintain low credit utilization
The credit utilization ratio is a key factor in your credit score calculation. Financial experts recommend keeping this ratio below 30%. For example, if you have a credit card limit of ₹1 lakh, you should not spend more than ₹30,000 on it. Higher utilization indicates reliance on credit, which can negatively impact your score.
Vigilance
Monitor your credit report regularly
Mistakes on your credit report can drag down your score unjustly. By regularly checking, you can catch and fix errors or fraud before they do major damage. You get one free report from each bureau every year. Reviewing these reports is crucial for making sure your financial behavior is accurately reflected, helping you keep your credit score in top shape.
Caution
Limit new credit applications
Each time you apply for a loan or a new credit card, the lender performs a "hard inquiry" that temporarily reduces your credit score by a small amount. Applying for several credits in a short timeframe can cause these small deductions to add up, resulting in a noticeable decrease in your score. Hence, be mindful when applying for new credits and do so only when needed.
Variety
Diversify your credit mix
Maintaining a mix of credits (such as home loans, personal loans, and credit cards) and managing them responsibly is beneficial. It demonstrates to lenders that you're capable of handling different types of debt effectively. This diversification contributes positively to your credit score as it indicates strong debt management capabilities across various forms of borrowing.