As we all know the CIBIL score is a really important number for us as a higher score puts us in good light when it comes to getting approved for any kind of loan, getting a better interest rate from the lenders or availing any other financial service from the banks for that matter. Hence, it is important that we monitor our credit score and also take steps that would improve the score for our financial well-being. Here we will see 6 ways to increase the credit score:

1. Always pay on time
2. Bring down credit utilization ratio
3. Maintain a healthy credit mix/age
4. Don’t keep too many loans/cards
5. Avoid multiple loan enquiries
6. Check your credit report to correct profile data

Always pay on time

There is nothing worse than not making on-time payments when it comes to credit card dues. Any payment missed is seen as a sign of borrower not being capable of paying back and affects the score poorly. To avoid this completely, one can set up auto-pay option for credit card bill so any due date is not missed. If that’s not possible then at least try to pay Minimum due amount.

Impact on score: High

Bring down credit utilization ratio

There is a saying in finance industry that a bank will give you loan if you can prove you don’t need it. 🙂 The formula for CUR is Outstanding balance/Total credit limit. For ex. if we have three cards with a total limit of Rs. 3 lakh and the outstanding balance on these cards is Rs. 50000 then CUR is ~16%.

A CUR of less than 20% is considered good for credit score. If the utilization ratio goes up then it is considered a lead indicator of financial stress. So either reduce your expenses or try to get higher credit limit.

Impact on score: High

Maintain a healthy credit mix/age

Credit mix is the range of credit products and services you have on your record. The higher the number of the types of credit, the better your score will be as it shows that you understand different types of credit that are available to you and are not over-relying on just one or two types of credit to fulfill your financial obligations.

Also, the age of your credit line has a positive impact because it helps to build credit history which means if you have an older credit card lying around then try to keep that card active which will reflect positively on your credit score.

Impact on score: Medium

Don’t keep too many loans/cards

Maintaining multiple active loans and cards makes the borrower a high risk candidate for the banks as it raises questions about borrowers repayment ability. Only keep the loans or card which are necessary for your financial obligations. Try to pay-off the loans with higher interest rate first and close the credit cards which are not of any use to you.

Impact on score: Low

Avoid multiple loan enquiries

When we seek out multiple cards or loans, then it signals to the bureaus that we are desperate for more credit and this is not considered a good sign. Only apply for new loans or credit cards when necessary and try to space out the applications so that your score doesn’t take a hit due to multiple credit requests in a short span of time.

Impact on score: Low

Check your credit report to correct profile data

From time to time one should access their detail credit report and look out for discrepancies in the data like name, address, age, occupation, email address, etc. When we apply for credit cards or loans then based on what documents we have submitted and what proofs have been furnished, sometimes our data is reported/documented with inconsistencies and same gets reported to bureaus.

So we should always check the credit report and submitting a complaint to rectify such inconsistencies will be helpful to improve the score.

Impact on score: Low

What are your thoughts about the impact of different factors on Credit Score? Have you tried any of the options in this article? Feel free to share your views in the comment section below.