22 August, 2024 | 12:01 IST
If you’ve recently obtained a credit score or if it is not what you would like it to be, there are steps you can take to improve it. In this article, we will talk about tried and tested methods that can help you improve your credit score in a reasonable amount of time. Let’s start with the basics.
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It takes banks or lending institutions around 3-4 months to report the latest activity in your account to the credit bureaus. However, if you already have a credit score you may see some changes in your credit score once a month.
Pay Your Bills on Time
This includes both your credit card bills as well as EMIs, if any. Missing even a single payment can negatively impact your credit score. You can check the history of your repayments by using any trusted credit score app. For example, you can check your credit score and get a detailed report on the Moneycontrol app or website. In the accounts section, when you tap on any credit card or loan account, you can view your payment history for the current year and the previous year.
Identify, Report, and Rectify Errors
Your detailed credit report can help you spot any errors related to your credit accounts. For example, there may be an unknown loan or credit card in your name or your contact information may be outdated. Correcting these mistakes can boost your score.
Track Your Credit Utilization
Credit utilization refers to the percentage of your available credit limit you have currently used. It is recommended to keep this ratio below 30%.
While calculating your credit utilization, both your overall credit limit and individual credit limits are taken into account. For example, you may have a total credit limit of ₹ 5,00,000 and your overall credit utilization may be 22% at a given time. However, you may have spent a large amount on one of your credit cards, let’s say 40%, which may negatively impact your credit score. You can track your credit utilization via any trusted app or website that provides a credit score.
While the above methods are pretty common, following are some lesser known ways to improve your credit score:
Use and Repay Credit Card Bills Strategically
Instead of paying off your credit card bill all at once, consider making smaller payments multiple times throughout the month. If you have swiped your credit card for a large amount for an offer that was available on your card, pay it off earlier before the bill is generated so that your credit utilization is not affected.
Increase Your Credit Limit
A higher credit limit can improve your credit utilization ratio and it comes at no extra cost. For example, if your limit increases from ₹1,00,000 to ₹1,50,000 but you continue to spend only ₹30,000, your utilization ratio drops from 30% to 20%. You can request a higher credit limit by getting in touch with the customer support team of your card issuer. Alternatively, you can keep an eye out for credit limit offers rolled out by your card issuer from time to time.
Get Your Own Credit Card
If you’re using an add-on credit card, your credit activity is reflected in the primary cardholder’s account. So, if you intend to build a credit score, it is better to get your own credit card. If you don’t have a credit score, you may find it difficult to get an unsecured credit card. In that case, you can consider going for an FD-backed credit card that doesn't require a credit score.
Maintain a Healthy Credit Mix
A balanced mix of credit accounts, such as a combination of a credit card, an auto loan and a home loan can positively impact your credit score. Lenders view borrowers with diverse credit types as less risky, provided you manage your credit accounts responsibly and repay your bills on time.
Improving credit score requires regular monitoring of credit score and building healthy financial habits. Consistency is key if you want to see good results that will pay off in the long run. If you are already tracking your credit score but do not have access to a detailed credit report, check out the credit score feature on the Moneycontrol app or website. It provides you with a free credit report that lists all your credit accounts and the activity therein.
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