Steps to improve credit score

Your credit score is one of the important factors in your financial life. No matter how much you earn, you need to know how to improve your credit score to plan your finances well. If you ever decide to take a loan, your credit score will be a key factor that helps lenders decide the interest rate and whether to give you a loan. Hence, if you have not already started working on it, it’s never too late. 

This blog will discuss how to improve credit score and other relevant factors.

What does Credit Score mean?

Your credit score is a numerical representation of your creditworthiness. The score is derived based on all your past credit activity. It tracks everything, such as the number of loan accounts you hold, credit inquiries about your credit history, your payment history, and your credit utilisation ratio. It is a three-digit score assigned to you by credit rating bureaus (CRBs) based on the information collected from different financial institutions.

Let us look at how you can go about increasing your credit score.

Steps on how to improve Credit Score

If you see your credit score going down and are worried about how to improve your credit score, the below mentioned steps may help:

1. Be disciplined in payments: This is the first and most important factor that determines your credit score. Pay your bill on time no matter what sort of EMIs you have due. If you are juggling multiple credit card bills and EMIs simultaneously, then you can set reminders so you don’t miss the deadlines.
   
   

2. Keep your credit utilisation ratio in check: An ideal credit utilisation ratio is 30% of your total available credit limit available on your credit cards. If you have exceeded that, try to bring it down to at least 50%. This ratio is your total debts divided by your total available credit limit. When you max out your available credit limit, it creates an impression that you are relying more on borrowed funds and can’t manage your finances well. 
   
   

3. Request for a credit limit increase: If you use credit cards and have been consistent with your payments, you can ask your bank to increase your credit limit. However, make sure not to exhaust it because this will help you maintain your credit utilisation ratio.
   
   

4. Avoid taking multiple loans at once: Even though you are in a cash crunch, try to avoid applying for too many types of loans at once. This reflects on your weak financial position and keeps you in a loop of credit, with a higher chance of default. 
   
   

5. Avoid closing your credit card: If you have a credit card that you do not need, then don’t use it. You don’t need to close your credit card account. This helps increase your credit utilisation ratio and also hurts your credit score.
   
   

How to Check Credit Score?

There are four Credit Rating Bureaus (CRBs) in India - CIBIL, Equifax, Experian, and CRIF. Every bureau collects your credit information and creates a report based on the same. The credit bureaus are also responsible for assigning you a credit score. 

To perform a credit score check, you need to visit the official website of any of the bureaus. Let’s say you visit CIBIL to check your score. So these are the steps to follow.

1. Click on “Check my CIBIL score”. 

2. Choose a subscription plan that works best for you.

3. Proceed to fill in your details and make the payment.

4. Once you complete the process, you can receive your credit score and report in your mail.

You can also check your credit score from the website of other CRBs, banks and financial institutions by paying the required fee. Most banks, NBFCs and fintechs also offer a free credit report once a year. 

Takeaway

It does not take too much effort to crash your credit score, but it takes a long time to build a good credit score. Now that you know how to improve credit score, the last step you need to take is to be disciplined and remain patient. You need to be consistent for at least six months to see any significant increase in your score.