Four Easy Ways to Get Your Credit Score Back on Track

Did you miss yet another credit card bill payment deadline? Well, if that is the case, being levied with late payment charges by your bank should be the less of your worries. The bigger issue facing you – if you frequently miss your bill payment due dates – is your deteriorating credit score.

For the uninitiated, all adults who do or have done any kind of monetary transaction / payment, have credit scores assigned to them by the credit bureaus of the country. Our credit scores are a marker of our financial ethics and borrowing habits. They shed light on factors like:

• Do we manage our credit burden well?
• Do we make timely EMI/bill payments?
• Do we have a huge credit liability?
• How likely are we to borrow a sum and ensure timely repayment?
• Are we financially responsible citizens?
• Can we be trusted with honest repayment of future credits?

What are credit scores? How are they calculated?

There are four credit bureaus operating in India – 

1. TransUnion CIBIL Limited 
2. Experian Credit Information Company of India Private Limited 
3. Equifax Credit Information Services Private Limited
4. CRIF High Mark

Any of these can be approached to get the credit report of a borrower while evaluating his/her loan application.
So, what happens if you have a poor credit score, you may wonder.

Whether you’re applying for a new credit card or thinking of going for a home loan to build your dream house, a healthy credit score will make your journey easier.

While reviewing your loan application, the lending bank or NBFC (non-banking financial corporation) will first check your credit score. 

A high score could entitle you to:

1. Quick approval of your loan application
2. Benefits such as a higher loan amount
3. Further benefits such as lower (hence more attractive) interest rates 
4. Being given a say in choosing your loan repayment tenure

Some of the factors that play a role in deciding your credit rating are:

• The length of your credit history
• Your repayment track record
• Any credit inquiries against your name 

Note: Soft inquiries made to a credit bureau, such as simply wanting to know your credit score for your own knowledge, do not have any impact on your credit rating. However, hard inquires, such as those made by a prospective lender while evaluating your loan request, will have a bearing on your future credit score.

What makes for a good credit score?

Your credit score is a 3-digit number. One look at it will give the viewer a fair idea of your credit history. To calculate your score, a credit bureau will evaluate your credit history and run it through its algorithm. Usually, the score ranges from 300 to 900. 

A score above 750 generally indicates that you have been responsible with credit. Such a credit rating will make need-based borrowing easier for you. 

Most banks in India rely on CIBIL scores, i.e., credit scores given by the Credit Information Bureau (India) Limited, one of the credit bureaus in India. However, credit scores from all the four bureaus are valid.
Here’s a look at different ratings allotted against different CIBIL score ranges:

CIBIL Score Range Rating
300-550 Poor
550-650 Average
650-750 Good
750-900 Excellent

Factors that lower your credit score

Before discussing the methods that can help you improve your credit rating, let’s first go through some common missteps through which you can end up lowering your credit score.

• Having high bills against your credit cards (maxing out on your allotted credit limit)
• Late credit or loan repayments
• Untimely credit card bill payments
• Being lax in fulfilling the commitments against your loan dues
• Closing a credit card that has an outstanding balance
• Closing old credit cards (this reduces your credit history, which isn’t advisable)
• Making multiple applications for credit cards or loans within a short span of time
• Just having one credit account 
• Having your credit account written off as a loss – this can spell a disaster for you!
• Having your account sent to collections (with third-party debt collectors at your door!)
• Filing for bankruptcy (your credit score will nose dive)

Easy tips to get your credit score back on track

If you just checked your credit score online and found it unsatisfactory, don’t fret. There are several actions that you can take to improve your credit rating. Mentioned below are 4 easy tips to boost your score:

1. Get disciplined in repaying your loans/credits in time

This goes without saying. If you have been defaulting on timely bills / utility / credit / loan payments, stop now and go for course correction. Every delayed payment brings your credit rating down by a few notches. Cumulatively, it can have a devastating effect on your credit score. 

Becoming disciplined in repaying your debts will not only help you save up by eliminating late payment charges but also improve your credit score.

Tip: Set monthly / periodic reminders to ensure that you pay your EMIs / bills well within the deadline.

2. Avoid taking on too much credit within a short span of time

This, too, is a no brainer. In a given duration, try and limit your loan to just one. Opting for multiple loans or forms of credit within the same period will quickly pull down your credit rating. As a sound financial practice, ensure that you apply for just one loan at a time and repay it fully before taking another loan.

Tip: If you already have a loan and need to borrow more, apply for the new loan in the name of a family member, e.g., your spouse.

3. Lengthen your credit history

Focus on building a strong and long credit history. Instead of closing old credit cards, continue using them and ensure that you make timely payments. This will definitely improve your credit score over time.

Tip: Try and pay your credit card bill in full every month. If it gets difficult once in a while, make sure you pay at least 30% of the billed amount. Clear up the debt as soon as possible.

4. Ensure you have sufficient credit balance

Always try to restrict your credit usage well within the limit allotted to you by your lender. How does this help? Here’s an example: let’s say you can borrow up to Rs. 2 Lakh a month on your credit card, but your actual average monthly usage is just Rs. 30,000 – which you almost always repay in full in every billing cycle. Then, you would end up having a great credit utilization ratio. Every month, you’re more than Rs 1.5 Lakh away from utilizing your full credit limit. This demonstrates that you’re a thoughtful spender and a responsible borrower.

Tip: Divide your monthly expenditure among credit and debit payments. While you may use some amount from your credit card, make sure you don’t hover too close to your allotted limit. Instead, use your savings to shoulder some part of your monthly outflow.