Credit score is one of the key factors in getting quick loan sanction; if you want a home loan or LAP in Delhi NCR, having a score above 750 is a golden ticket to get the best deal on interest rates. To improve your score, it is important to understand the algorithms of bureaus such as Equifax and CIBIL.
In case you want to improve your credit score, if you are just starting to build your credit history from scratch, this is a guide to help you improve your creditworthiness.
How to improve credit score:
In India, credit score basically reflects your financial discipline. Though, with certain actions, you can have a positive impact on the models used by credit bureaus.
1. Ensuring credit utilization fix
A lower credit utilization ratio is one of the fastest ways to improve a credit score. This is basically the percentage of total available credit limit you are using.
- Strategy to be used: Try and keep your utilization below 30%. If you have a limit of INR 500,000 and you utilize INR 475,000 consistently, the bureau will view you as credit hungry even if you are making complete payments.
- Quick Fix: If you are using credit to the maximum, then try and pay down your balances mid-cycle even before the bill is generated. This will ensure a lesser amount of reporting to the bureau. Alternatively, try and increase your limit to bring down the utilization percentage.
2. Monitor reporting errors
Even today, in many instances in India, inaccuracies are surprisingly common in credit reports. A closed loan may still show as active or settled, and that might be dragging down your credit report, so ensure that if a loan or card is closed, it should reflect as such.
- Strategy to be used: Ensure you download your official report from CIBIL or Experian and look in case of any incorrect personal details, any accounts not linked to you, or any faulty active or delayed entries.
- Quick Fix: If any error is there, use the online dispute resolution portal on the bureau’s official website. Once an error is corrected, it normally reflects within 30-45 working days.
3. Benefit of ensuring a healthy credit mix
Lenders usually prefer borrowers with varying types of debt, so for example, if you only have unsecured debt like credit cards and personal loans, there is a possibility that your score may stagnate.
- Strategy to Use: Try and introduce a secured loan, a gold loan, or a loan against a fixed deposit to show that you can manage asset-backed credit also.
- Quick Fix: In case you don’t have any credit history,a credit card backed by an FD is the quickest way tostart building a credit report.
Strategy for Long-Term Stability:
Avoid Hard Enquiries:
Whenever you apply for a new card or loan, the lender will pull your report, which results in a hard inquiry. Multiple hard inquiries in a short span of time signal stress and impact credit in a negative manner.
- Strategy to be used: Take help from specialized loan providers to check the best lender fit basis your profile rather than applying randomly.
Don’t settle a debt:
Sometimes when we are in dispute with a lender, we can get a settlement offer wherein you pay less than the total due. Try and avoid this at all costs. Settled status on a CIBIL report is damaging to an overall credit profile.
- Strategy to be used: Always try for a closed status. It is always advisable to pay the total due, including interest, to ensure no rejections in future mortgage applications.
Frequently Asked Questions (FAQ)
1. How much time does it take to get a credit score to update in India?
Lenders normally report data to the bureau once a month. So any action we take today will normally reflect in your score within 30-60 days.
2. If I check my own credit score, will it reduce my score?
No. Whenever you are checking your score yourself through any fintech app or official bureau website, it is considered a soft inquiry. This has no impact on your credit score. Inquiries made by lenders only impact your credit score.
3. If I close my old credit card, will this improve my CIBIL score?
No, closing an old card may reduce your overall available limit and thus may in fact increase your utilization ratio. Also, this reduces your average credit history age.
4. If I have a high income, will it compensate for a low credit score?
Not necessarily. A high income will definitely depict strong repayment capacity, but a credit score also depicts repayment intent. So a higher earner with a CIBIL of 600 will get a higher rate than a middle-income earner with a CIBIL of 750+.
5. My score has stagnated despite regular payments. Why?
This can happen due to low credit history. If you only have one card, try adding a small consumer loan or an FD-backed loan/card; this will further diversify your profile.
Conclusion:
Maintaining a strong credit profile is not a sprint but a marathon. But the financial benefits are immense. A strong score help in getting quicker sanctions, better negotiating power with banks on processing fees, loan amounts and interest rates.
So always ensure you monitor your report regularly and maintain a low utilization ratio.