4 Key Factors To Consider To Raise Your Credit Score

As a modern consumer, it is important to know how to check your credit score and how to improve it. It forms a key part of your financial profile, and can help you access helpful financial tools. Simply put, your credit score is a 3-digit number which represents your creditworthiness.

It helps lenders to decide if they can lend you money or not. Multiple credit rating agencies in India calculate the credit score for individuals and businesses. Among these is the CIBIL score, which ranges from 300 to 900.

This is one type of credit score, and the CIBIL score calculation is different, leading to minor variations between the different scores. However, most lenders will consider your CIBIL score when assessing your application for new credit.

As such, it is important to understand the factors that affect your credit score and how you can improve it. To that end, consider the following pointers.

Factors Affecting Credit Score

Your credit score reflects your creditworthiness to apply for credit. It plays a significant role in determining your eligibility for certain instruments. Here are the top 5 factors that affect your credit score:

Payment history:

Your score is based on your credit history, and your debt payments are recorded in this history. As such, it is important to have a history that reflects responsible behaviour. In this case, it means making payments on time, and doing so consistently for all your active accounts.

Payment history:

Your score is based on your credit history, and your debt payments are recorded in this history. As such, it is important to have a history that reflects responsible behaviour. In this case, it means making payments on time, and doing so consistently for all your active accounts.

Credit utilisation ratio:

Your credit utilisation ratio is a marker of the credit you have availed relative to your total available credit. It is important to keep it below 30% to maintain a good CIBIL score. Overusing your credit suggests that you are overly reliant on credit, which causes your score to dip.

Types of credit:

The variety of credit accounts you hold can also affect your credit score. Having a mixture of credit types, such as credit cards, unsecured loans, and mortgage is preferable. It shows that you can manage different types of credit and are a reliable borrower.

New credit applications:

Whenever you apply for credit, a hard inquiry is conducted on your credit report, reducing your credit score slightly. It's essential to restrict the number of credit applications you make to avoid unnecessary damage to your score.

Tips to Improve Credit Score

Having a high credit score is vital to getting the best deals when availing new credit. Here are 5 practical tips you can follow to improve your credit score.

1. Regularly check your credit score and credit report: You must check your credit report frequently to identify any mistakes or instances of fraud. These affect your credit score and have lasting impact. The major credit bureaus offer a free annual credit report that can help you monitor your credit report for errors and take corrective actions as needed.

2. Pay bills on time: Late payments have a considerable adverse effect on your credit score. To enhance your credit score, ensure that you make timely payments on all bills, including credit cards and loans. This practice will help you maintain a positive credit history and avoid any consequences.

3. Increase credit limit: Raising your credit limit helps lower your credit utilisation ratio, and this can have a positive impact on your score. Nonetheless, it's crucial to avoid overspending and accumulating more debt with the increased credit limit.

4. Avoid multiple credit applications: Making too many credit applications within a short time frame can lead to you having too many hard inquiries into your credit report. These can reduce your credit score significantly, even if temporarily. To maintain a good credit score, it's important to limit your credit applications and only apply when necessary.

5. Use credit mix wisely: A healthy credit mix, including credit cards, auto loans, and mortgages, can boost your credit score. It's essential to manage the credit mix responsibly and avoid excessive debt. Use your credit wisely, make timely payments, and prioritise repayment, even if you have a healthy mix.

How to Check Your Credit Score

Learning how to check credit score is easy, and doing so regularly is just as simple. It can help in improving your chances of obtaining loans, credit cards, and mortgages. The simplest way is to do so via your bank or a preferred financial institution.

These entities generally have services wherein you can get your score and even the report, for a fee. Getting access to the report is key to understanding your CIBIL score calculation and your current standing.

Moreover, your credit report has information that is useful for applying for a loan. You must look into your report for errors or fraudulent activities to avoid bad credit scores. If you find errors, it's important to take action to correct them. You can contact the credit bureau to make corrections.

Understanding CIBIL Score Calculation

The CIBIL score, or Credit Information Bureau (India) Limited score, is a numerical rating system that reflects your creditworthiness. Financial institutions and banks rely on this score to assess your standing when you apply for loans and other forms of credit.

It's a three-digit number that holds significant weight in the credit industry. The CIBIL score ranges from 300 to 900. Naturally, scores closer to 900 will help you get the best deals. Thankfully, by understanding the CIBIL score calculation and the factors that affect it, you can maintain a high score.

Generally, you need to ensure that your credit history showcases you as a responsible borrower. This means have no late payments or defaults in your history. Secondly, a high credit utilisation ratio is a red flag, and you should work on getting within the acceptable range.

Lastly, focus on maintaining a healthy mix. Avail new credit only when needed and have a healthy mix between secured and unsecured debt. Combined, all these actions should help you maintain an adequate score and understand your CIBIL score better.

Before you apply for any new credit, you must check your credit score and credit report to stay on top of any changes. Keep in mind that the credit score is a key criterion for most lenders too, and failing to meet this requirement is grounds for rejection.