Low credit score? These tips will help you improve it
In India, a credit score ranges from 300 to 900, guiding lenders on the likelihood of loan repayment. Higher scores signal better creditworthiness, crucial for favorable loan and credit card rates. This article demystifies credit scores for Indian borrowers. It provides insights on their workings and improvement strategies. The language is clear, straightforward, and without unnecessary details.
Know where you stand
Before you can improve your credit score, you need to know what it is. Several agencies in India, including CIBIL, Experian, and Equifax, provide credit reports. The Reserve Bank of India mandates that these agencies must offer one free report per year to individuals. Checking your score does not impact it, so it's wise to start here.
Factors affecting your score
Your credit score is influenced by several factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%). On-time payments and low balances relative to your limits boost your score. Conversely, late payments and high debt levels relative to your income or limits can lower it.
Improving your credit health
Making timely payments on all your debts is the most effective method to enhance your credit score. Missing even one payment can have a substantial negative effect on your score. To avoid this, consider setting up reminders or enrolling in automatic payments. This strategy ensures you never overlook a due date, maintaining or improving your creditworthiness.
Manage your debts wisely
Keeping the balances on your credit cards and other revolving credit low compared to the limit helps improve your utilization ratio. This ratio is a key factor in calculating your score. Aim for a utilization ratio below 30%. Paying down high balances and not using more than 30% of available credit on any card will positively affect your score.
Limit new credit applications
Every time you apply for a new line of credit or loan, an inquiry is made into your report. This inquiry can slightly lower your score temporarily. Applying for multiple credits within a short period can have a compounding effect. It can further lower your score. It's advisable only to apply for new credit when absolutely necessary.
