Compiled ByVimal Saboo, Chief Business Officer at EarlySalary
About Vimal: He is a Chartered Accountant and comes with an experience of 22 years in banking and credit domain. In his current role at Earlysalary, he focuses on building the Credit Risk Profiling system and spearhead Credit Risk, Analytics, Collection & Operations.

Having a good credit score is extremely critical. After all, it works as a key factor for banks and financial institutions while providing you with a loan or a credit card. A credit score is a 3 digits numeric number ranging from 300 to 900, and it is assigned to every individual who has availed of a credit product, based on his or her credit/loan behavior over the period. In India, credit history is maintained by credit bureaus that are licensed by RBI. Currently, there are 4 credit bureaus in India, and they are TU CIBIL, Experian, Equifax, and CRIF Highmark. Each of these credit bureaus has its own algorithm to assign a credit score to every individual.

The score is generated based on an individual’s credit repayment behavior over a period. All of us need to maintain a healthy credit score as it determines our borrowing capability. A healthy credit score would be in the range of 700-900 depending on the credit bureau. Generally, all lenders look at credit score and credit report before giving out any credit product, be it secured or unsecured. Maintaining a healthy credit score also gets you a lower interest rate on your loans.

Easy tips to improve your credit score

● Paying loan EMI’s/credit card bills on time

If you pay your loan EMI or credit card bill on time, your credit score would be healthy over the period.

● Never pay just the minimum amount due

In general, you should make payment of your credit card bills either in full or at least pay more than the minimum due amount. Paying the minimum due amount on credit card bills reduces your chance to improve your credit score.

● Maintain credit card limit utilization below 60-70%

Avoid utilizing your credit card limit to its fullest, as it impacts credit score negatively. If you happen to utilize the limit completely, you should make sure that the payment is done in full/part to bring the limit utilization down to 60-70%.

● Avoid unnecessary inquiries for loan/credit card

Applying for a loan at multiple platforms or lenders creates a footprint on the credit report, and multiple inquiries at credit bureaus for a loan, that too within a short period, will impact credit score negatively. You should not keep looking at loan/credit card options unless it is necessary.

● Good mix of credit product

Always maintain a good mix of both secured (home loan/auto loan/2wheeler loan etc.) and unsecured (personal loan/credit card/consumer durable etc.) loans. A good mix improves the chances of having a better credit score. Although, having too many unsecured loans should not be preferred.

Sometimes, you might receive a wrong credit score or there might be a mistake in your CIBIL report. It is not impossible to correct CIBIL report mistakes if you know exactly when and how to resolve them, but it is always recommended to check your credit score well in advance as there is no way you can correct the report at the last minute.

You should always keep looking at your credit bureau report periodically for any wrong reporting done by lenders. If you find any wrong reporting, you should raise the dispute and take your concern to credit bureaus for correction.

As a responsible borrower, you should manage the finance well and repay the loans/credit card on time to have a good credit score. Sometimes, even though you are aware enough, you end up missing the due dates to clear your credit card bills/loan EMIs. Repetitive mistakes like this and multiple outstanding loans can lead to a very poor credit score. It is always advisable to clear your loans/credit card bills rather than paying high rates of interest with increased delays.

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