How to Boost Credit Score in India?

In today's world, having a good credit score is crucial, especially when it comes to making big financial decisions like buying a house or car. 

In India, a credit score ranges from 300 to 900, with a higher score indicating a better credit history. However, many people struggle to maintain a good credit score, which can help them to qualify for loans or credit cards. Fortunately, there are many proven strategies that can help individuals boost credit score and improve their financial standing. 

In this article, we will discuss how to increase your credit score in India.

Why is a good credit score important?

Before we begin to answer how to raise credit score, let’s understand why it is important. A good credit score is essential for anyone who needs to - 

▶️ Borrow money

▶️ Apply for a credit card

▶️ Make any significant financial decisions. 

A high credit score indicates that you have a history of timely payments and responsible credit usage. It reassures lenders and creditors that you are a low-risk borrower, allowing you to be eligible for better interest rates and loan terms. 

On the other hand, a low credit score can lead to rejection from lenders or creditors or require you to pay high-interest rates. It can also impact your ability to rent an apartment, apply for a job, or even start a business. 

Therefore, maintaining a good credit score is crucial for anyone who wants to achieve financial stability and success.

Understanding your credit score and how it's calculated

Your credit score is a three-digit number between 300 and 900 that represents your creditworthiness. 

A high credit score indicates that you are a low-risk borrower, while a low credit score implies the opposite. Your credit score is calculated using various factors:

▶️ Payment history

▶️ Credit utilization

▶️ Length of credit history

▶️ Types of credit. 

The credit bureaus in India use information from your credit report to calculate your credit score.

It's essential to understand how your credit score is calculated so that you can take appropriate measures to improve it. 

▶️ Payment history is the most crucial factor, comprising 35% of your credit score. This means that paying your bills on time is crucial to maintaining a good credit score. 

▶️ Credit utilization, which is the amount of credit you're using compared to your credit limit, is another crucial factor, comprising 30% of your credit score. To maintain a good credit score, keep your credit utilization below 30% of your credit limit.

▶️ Length of credit history also plays a significant role in your credit score, comprising 15%. The longer your credit history, the better your credit score. 

▶️ Types of credit: Having different types of credit, such as a mix of credit cards, loans, and mortgages, can also improve your credit score. This factor comprises 10% of your credit score.

Finally, recent credit inquiries and new credit accounts opened can also impact your credit score. Try to avoid opening too many new credit accounts at once, as this can negatively affect your credit score. Understanding these factors and how they contribute to your credit score is essential to boost your credit score in India.

"Also Read: Growth Plan: What is it & How to Create One?"

10 proven strategies to boost credit score

🔵Pay Your Bills on Time - This is the most crucial factor in maintaining a good credit score. Ensure that your payment history is spotless by paying your bills on time, every time.

🔵Keep Your Credit Utilization Low - Credit utilization is the amount of credit you are using compared to your credit limit. Keeping your credit utilization below 30% of your credit limit is essential to maintain a good credit score.

🔵Check Your Credit Report Regularly - Check your credit report regularly for errors and inaccuracies. Dispute any errors you find with the credit bureau to keep your record accurate.

🔵 Maintain a Good Credit Mix - Having different types of credit, such as credit cards, loans, and mortgages, can improve your credit score. However, ensure that you do not open too many accounts at once, as this can negatively impact your credit score.

🔵Do Not Close Old Credit Accounts - The length of your credit history plays a crucial role in determining your credit score. Keep old credit accounts open to maintain a long credit history.

🔵Avoid Making Multiple Credit Applications at Once - Applying for multiple credit accounts at once can negatively affect your credit score. Only apply for credit when necessary, and ensure that you do not have too many credit inquiries.

🔵Set Up Automatic Payments - Ensure that your bills are paid on time by setting up automatic payments for your bills, loans, and credit card payments.

🔵Improve Your Debt-to-Income Ratio - Your debt-to-income ratio compares your debt payments to your income. A lower ratio indicates that you are in a better financial position and can improve your credit score.

🔵Negotiate with Creditors - If you are struggling to make payments, negotiate with your creditors to work out a payment plan that works for both parties.

🔵Seek Professional Credit Counseling - If you are facing financial difficulties, seek professional credit counseling. Credit counselors can provide you with tools, budgeting advice, and guidance to help you improve your credit score.

All the points above can help you boost credit score. Below, we are going to elaborate each of these points. 

🔵Pay your bills on time

Pay Your Bills on Time is the answer to the most basic question - How to improve credit score?

Paying your bills on time is the most crucial factor in boosting your credit score. Late payments can have a significantly negative impact on your credit score and may stay on your credit report for up to seven years.

To ensure timely payments, consider setting up automatic payments. This can help you avoid late payments even if you forget about them. Also, consider setting up reminders on your phone or calendar to keep track of payment due dates.

Remember, paying your bills on time every time will not only improve your credit score, but it will also help establish good credit habits. These habits can ultimately lead to financial freedom and better opportunities in the future.

🔵 Keep your credit utilization ratio low (How to increase credit score?)

After paying your bills on time, keeping your credit utilization ratio low is the next most crucial factor in improving your credit score. Credit utilization refers to the amount of credit you use relative to your credit limit.

If you have a credit limit of Rs. 50,000 and you are using Rs. 25,000, your credit utilization ratio is 50%. A high credit utilization ratio indicates you are using a significant portion of your available credit, which can negatively impact your credit score.

To keep your credit utilization ratio low, consider paying off your credit card balance in full each month. If this is not possible, try to keep your balance below 30% of your credit limit. Additionally, consider increasing your credit limit or applying for a new credit card to increase your credit score available, but avoid overspending.

By keeping your credit utilization ratio low, you are demonstrating responsible credit management and improving your credit score in the process.

🔵 Don't close old credit accounts

While it can be tempting to close old credit accounts, it can actually harm your credit score. Closing an old account can cause your credit utilization ratio to increase, as your total credit available will decrease. Additionally, the length of your credit history is an important factor in determining your credit score. If you close an old account, you are essentially shortening your credit history, which can negatively impact your credit score.

Instead of closing old accounts, consider keeping them open and using them occasionally to keep them active. This will show that you have a long history of responsible credit use, which can improve your credit score over time.

It's important to note that if a credit card has an annual fee and you don't use it, it may be worth closing the account to avoid paying unnecessary fees. However, if the account is free and has no fees associated with it, it may be worth keeping open to maintain a long credit history and improve your credit score.

🔵 Check credit report regularly for errors

Your credit report is a crucial document that contains all the information related to your credit history and credit score. It is essential to check the credit report regularly to ensure that all the information on it is accurate and up-to-date. 

Even a minor error on your credit report can negatively impact your credit score and prevent you from getting approved for loans and credit cards.

You are entitled to a free credit report from each of the major credit bureaus once a year. So take advantage of this opportunity and check your credit report for errors. Look for any incorrect personal information, such as your name, address, and phone number, as well as any fraudulent activity, late payments, or collections that do not belong to you.

If you do discover any errors on your credit report, make sure to dispute them with the credit bureau. You can do so by sending a dispute letter with supporting documents such as payment receipts or account statements. 

The credit bureau will investigate the dispute and correct any errors if necessary, which can improve your credit score and financial health.

🔵 Consider taking a credit-builder loan (Boost credit score)

If you have a low or nonexistent credit score, a credit-builder loan could be a great option to start building your credit history. 

A credit-builder loan is a small loan that is specifically designed to help individuals with poor credit or no credit history to establish and improve their credit score.

Credit-builder loans work by requiring you to make regular payments, which are reported to credit bureaus. These on-time payments can help you establish credit, while also demonstrating to lenders that you are responsible with your finances.

While credit-builder loans may come with higher interest rates, they are a valuable tool to help you start improving your credit score. 

Just make sure to choose a reputable lender and read the terms and conditions carefully before signing up for a credit-builder loan.

With consistent on-time payments, a credit-builder loan can help you establish a solid credit history, which can open the doors to better financial opportunities in the future.

🔵 Seek professional help if needed

Sometimes, despite your best efforts, your credit score may not improve or even decrease. In such situations, seeking help from a professional may be necessary.

Credit counseling services can help you analyze your credit report, identify areas of improvement, and develop a plan to increase your credit score. They can also help you negotiate with creditors and lenders to reduce interest rates and payment amounts.

You can also consider working with a credit repair company, which specializes in improving credit scores. However, be cautious of scams and always do your research before working with a company.

Remember, improving your credit score takes time, patience, and diligence. Be consistent in paying your bills on time, reducing your debt, and avoiding new credit applications. And don't hesitate to seek professional help if needed to reach your financial goals.

Conclusion

Improving your credit score in India may seem like a daunting task, but it is not impossible. The strategies we have mentioned in this article are proven to work, and by incorporating them into your daily financial routine, you can boost your credit score and reap the benefits of higher creditworthiness. Remember to be patient, consistent, and diligent, and consider seeking professional help if needed. With dedication and effort, you can achieve your financial goals and live a more secure financial life.