Increase your credit score: Your credit score is an essential financial metric that can make or break your financial life. It is a three-digit number that reflects your creditworthiness and financial stability. A high credit score means that you are a responsible borrower and are likely to repay your debts on time. In India, credit scores range from 300 to 900, and a score above 750 is considered excellent.
Here are the top 5 ways to increase your credit score in India.
Pay your bills on time
The most crucial factor that affects your credit score is your payment history. Late payments, missed payments, or defaulting on a loan can significantly damage your credit score. Therefore, it is essential to pay your bills on time, including your credit card bills, loan EMI, and utility bills. Setting up automatic payments or reminders can help you avoid missing payments.
Keep your credit utilization ratio low
Your credit score usage ratio is the proportion of your credit score restriction that you are using. A high credit utilization ratio can negatively impact your credit score, as it indicates that you are dependent on credit and may not be able to repay your debts. Experts recommend keeping your credit utilization ratio below 30% of your credit limit. For example, if your credit limit is Rs. 1 lakh, you should not use more than Rs. 30,000.
Check your credit report regularly
Your credit report is a record of your credit history, including your credit accounts, payment history, and outstanding debts. It is crucial to check your credit report regularly to ensure that all the information is accurate and up-to-date. You can obtain a free credit report once a year from any of the four credit bureaus in India: CIBIL, Experian, Equifax, and CRIF High Mark. If you find any errors, you can dispute them with the credit bureau to have them corrected.
Maintain a healthy credit mix
A healthy credit mix means having a good balance of secured and unsecured loans. Secured loans are those that are backed by collateral, such as a home loan or a car loan. Unsecured loans, such as credit cards and personal loans, do not require collateral. Having a healthy credit mix shows that you are capable of managing different types of credit and can improve your credit score. However, it is essential to borrow only what you need and can afford to repay.
Avoid applying for multiple credit accounts at once
Applying for multiple credit accounts at once can hurt your credit score, as it indicates that you are credit-hungry and may not be able to repay your debts. Each time you apply for credit, the lender checks your credit report, which is recorded as a hard inquiry. Too many hard inquiries can lower your credit score. Therefore, it is advisable to apply for credit only when you need it and not to apply for multiple credit accounts simultaneously.
Improving your credit score takes time and effort, but it is worth it in the long run. A good credit score can help you access credit at lower interest rates, get better credit card offers, and improve your financial standing. By following the tips mentioned above, you can increase your credit score and take control of your financial life.