5 Ways To Improve Your Credit Score

Your credit score is a three-digit number that can make or break your financial dreams. This number is a reflection of your past payment behaviour.

A credit score has gained immense importance in the recent years. The lending institutions evaluate your credit worthiness based on your credit score as it helps them estimate the likelihood of repayment of a credit facility, depending on your past pattern of credit usage and loan repayment behaviour. So the higher the score, the higher the confidence the lending institution will have in you and hence, the better the chances of your credit application getting approved. Generally in India, a credit score of more than 750 is considered to be good, which we all wish to have.

You know the famous phrase – Rome was not built in a day. The same applies here, which means you can only gradually build your credit score. Here are five essential steps that will lead you to that goal:

1. Ensure your credit report is error free
Check your credit report periodically (at least twice a year) to ensure it does not contain any erroneous data as that can hurt your credit score. If you find any error on your credit report, make sure that you contact the credit bureau or the lending institution to correct that error. Ideally, you can also check with your credit counsellor and seek expert’s advice.

2. Pay off your debts
Setting a realistic plan to repay your debts is a good step. Minimising the outstanding debt will help improve your credit score.

3. Make timely repayments of your EMIs
Payment history influences almost 35% of your total credit score. Hence, it is a crucial factor that determines your overall credit score. Be consistent and have a responsible approach towards your repayments and it would help improve your credit score. Always pay on TIME.

4. Use fewer credit cards and ensure low usage
Be prudent with the number of credit cards you own. Credit utilisation on each credit card should ideally be 30-40% of your credit limit. So make judicious use of your credit cards.

5. Be careful about new credit purchases
Ensure that you apply for credit only when you require it. Your applications for a credit facility result as ‘enquiries’ on your credit report and stay there for 7 years. High number of ‘enquiries’ could have a negative impact on your credit score.

A credit score is based on your credit history and behaviour built over the years. However, these 5 simple ways are your first steps to build a good credit history and improve your credit score. Finally, be prudent – after all, it’s your financial health we are talking about.

About the author: Satish Mehta is the founder and director of Credexpert, a credit and debt counselling company in India.