Four ways to improve your credit score and unlock better loan terms

A credit score above 750 is generally considered excellent by lenders, increasing your chances of securing larger loans at lower interest rates.

Having a good credit score is crucial in landing loans that are easier to live with and lead to saving money on interest rates. A strong credit profile can make all the difference when it comes to being approved for an advance from a bank or for credit cards. By understanding the importance of credit scores and implementing effective strategies, individuals can improve their financial health and access more favourable borrowing options.

Why credit scores matter

When two individuals with similar incomes and age profiles apply for, say, a personal loan, the interest rates offered can vary significantly. For instance, one person might secure a loan at 11 percent interest, while the other is offered 14.5 percent. This 3.5 percentage point difference can have a substantial impact on their finances. For a Rs 10 lakh loan over four years, at 11 percent, the equated monthly instalment or EMI would be Rs 25,846, and the total interest payment would be Rs 2.41 lakh. At 14.5 percent, the EMI increases to Rs 27,578, with a total interest payment of Rs 3.24 lakh.

The difference in interest paid over four years would be Rs 85,000, a significant amount for the same loan.

The role of credit scores

This disparity often stems from differences in credit scores, which reflect an individual's repayment behaviour. A strong credit history, marked by timely loan repayments and settlement of credit card dues, can lead to more favourable loan terms. Conversely, a history of missed payments and unpaid balances can result in higher interest rates.

Credit scores, typically ranging from 300 to 900, reflect your creditworthiness. A score above 750 is generally considered excellent by lenders, increasing your chances of securing larger loans at lower interest rates. Lenders, including banks and non-banking financial companies, naturally prefer such customers as high credit scores signal responsible financial behaviour and lower risk of default or non-payment.

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Key factors to boost your credit score

Here are four strategies to improve and maintain a high credit score:

Consistent loan repayments

Timely and full repayment of EMIs and dues is crucial. Occasional misses may not drastically harm your score but habitual delays will. A strong repayment track record is the foundation of a good credit score.

Low credit utilisation ratio

Keep your credit utilisation—your outstanding loan and credit card balances relative to your total credit limit—below 30-35 percent. A high ratio over time suggests over-reliance on credit, which can lower your score.

Balanced credit mix

Lenders prefer a mix of secured (e.g., home loans or loans against gold and/or jewellery) and unsecured (e.g., personal loans or credit card dues) debt. Excessive unsecured debt raises red flags, so aim for a balanced portfolio to maintain a healthy score.

Long credit history

A longer history of well-managed loans and credit cards strengthens your score. It demonstrates financial discipline, making you a low-risk borrower in the eyes of lenders.

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Why it matters for the future

Even if you don’t need a loan now, a high credit score ensures better borrowing terms later—higher loan amounts and lower interest rates. Building and maintaining a strong credit profile today prepares you for future financial needs with greater ease and affordability.