How to Improve Your Credit Score: A Comprehensive Guide

Smart Steps to Build a Strong Credit Score

In India, a solid credit score is more than just a number. It’s the financial foundation that can either open doors to better loan deals or, on the flip side, limit access to credit. With a high credit score, you gain access to lower interest rates, better loan terms, and higher chances of loan approvals. On the other hand, a low score can mean missed opportunities and higher financial costs.

In this guide, we’ll walk through actionable steps to increase your CREDIT score and improve your overall credit health. Let’s get started on understanding why this score is so important and the methods you can adopt to enhance it.

What is a Credit Score and Why Does It Matter?

A credit score is a three-digit number, ranging from 300 to 900, that reflects your creditworthiness. In India, the most commonly used credit score is the CREDIT score, calculated by TransUnion CREDIT. When you apply for a loan or credit card, lenders rely on this score to assess your risk level as a borrower.

A high credit score (generally above 750) signals responsible credit behaviour, making getting approved for loans or credit cards with favourable terms easier. On the other hand, a low score can make borrowing more challenging and costly, as lenders may view you as a higher-risk applicant.

10 Actionable Tips to Improve Your Credit Score

By following these tried-and-true methods, you can improve your CREDIT score over time, boosting your chances for better financial outcomes.

Pay Your Bills and EMIs on Time

Timely payments form the bedrock of a healthy credit score. Your payment history accounts for about 35% of your score, meaning that even one missed payment can impact it significantly. Set up reminders or automatic payments for credit cards, EMIs, and utility bills to ensure that your credit score remains positive. Regular on-time payments keep your score healthy and establish a reliable credit history.

Reduce Credit Card Balances

High credit card balances can pull down your credit score. Aim to keep your balances as low as possible. If possible, try to pay off your full balance each month. Lowering your outstanding balances reflects responsible credit management, which is crucial if you’re looking to increase your CREDIT score.

Maintain Low Credit Utilisation

Another key factor is the credit utilisation ratio, which is the percentage of your total credit limit you’re using. For example, if your credit limit is ₹ 1 Lakh and you’ve spent ₹ 50,000, your utilisation is 50%. Ideally, you should try to keep your credit utilisation under 30% to maintain a healthy score.

Avoid Closing Old Credit Accounts

A longer credit history contributes positively to your score. Closing an old credit account shortens your credit age, which can negatively impact you. If possible, keep older accounts open, even if they are not in active use, to benefit from a longer, positive credit history.

Pay More Than the Minimum Due

While paying the minimum due amount on your credit card keeps you from being marked as a defaulter, it can lead to high interest charges and impact your credit utilisation. Paying more than the minimum due keeps your balances lower, helps you save on interest, and improves your credit score over time.

Choose a Longer Repayment Tenure

Opting for a longer repayment tenure for loans means your monthly EMI is lower, reducing the risk of default. A consistent track record of timely EMI payments on longer tenures improves your CREDIT score.

Increase Your Credit Limit

If you’re handling credit responsibly, consider requesting a higher credit limit on your credit card. If not used entirely, a higher limit lowers your credit utilisation ratio, reflecting positively on your score. Just remember, increased credit should be used wisely.

Avoid Being a Guarantor

While it may seem helpful to be a guarantor for someone’s loan, it’s risky. If the primary borrower defaults, you are responsible for repayment, which can harm your credit score. To protect your score, avoid becoming a guarantor unless you’re fully confident in the borrower’s repayment ability.

Avoid Acquiring Multiple Loans

Taking on multiple loans or applying for too many credit cards in a short time can hurt your credit score. Each loan application leads to a “hard inquiry” on your credit report, and multiple inquiries in a short period may suggest financial distress. Avoid making frequent credit applications to maintain a high CREDIT score.

Maintain the Credit Card Ratio

A balanced credit mix of secured (home or car loans) and unsecured loans (personal loans, credit cards) enhances your credit profile. For instance, if all your credit sources are from credit cards, consider adding a secured loan to diversify your profile, which lenders often view favourably.

Factors that Affect Your Credit Score

Understanding the various factors that influence your CREDIT score is essential to improve it. These factors include:

Payment History

Payment history is the single most important factor affecting your credit score. It captures whether you’ve been timely or late in your payments and by how much time. A history of late or missed payments will damage your score, so prioritising on-time payments is critical.

High Credit Utilisation Ratio

A high credit utilisation ratio can lower your score, meaning you’re using a large percentage of your available credit. As mentioned earlier, aim for a utilisation ratio below 30% to keep your score in good standing.

Not Having a Credit Mix

A blend of credit types—such as credit cards, personal loans, and secured loans—demonstrates responsible credit management and can positively impact your score. Relying too heavily on one type, such as only credit cards, can limit your score potential.

Length of Credit History

The length of your credit history matters; the longer your credit accounts have been open, the better. Lenders generally view longer histories as signs of experience in managing credit. For this reason, avoid closing your oldest accounts if possible.

Frequency of Credit Applications

Frequent applications for credit can hurt your score. Each time you apply, a hard inquiry is made on your credit report, temporarily lowering your score. Spacing out your applications shows lenders you’re in control of your finances.

How Long Does It Take to Improve Your Credit Score?

Improving your credit score isn’t an overnight process; it requires consistency and patience. Generally, the time it takes to see an improvement depends on your current credit situation and the steps you’re taking to boost it. Here’s a closer look at the typical timelines you can expect:

Minor Improvements (1 to 3 Months):

If you’re making small adjustments, like paying off a small balance or reducing credit utilisation on one or two cards, you may see a slight increase within one to three months. Minor actions, such as making all payments on time and avoiding new debt, can result in gradual improvements.

Moderate Improvements (3 to 6 Months):

If you’re addressing more significant issues, like paying down a large credit card balance or correcting errors in your credit report, it may take three to six months for these efforts to reflect in your score. Consistently paying bills on time and keeping balances low during this period is key to seeing steady progress.

Major Improvements (6 Months to a Year or More):

For those with a low credit score due to serious issues like defaults, high credit utilisation, or multiple missed payments, the timeline can extend from six months to a year or even longer. In these cases, rebuilding your score involves a comprehensive approach, including paying down debts, maintaining timely payments, and avoiding new loans or credit cards until your score improves.

Final Thoughts

A strong credit score is invaluable, as it determines your eligibility for loans, credit cards, and even job opportunities. By consistently practising good credit habits—like paying on time, maintaining low balances, and avoiding unnecessary loans—you can steadily increase your CREDIT score over time. Remember, improvement doesn’t happen overnight; it’s the cumulative effect of responsible credit management. Stick to these strategies, monitor your progress, and you’ll be on your way to a healthier financial profile.

Frequently Asked Questions

How does Credit Score affect loans?

A high credit score improves loan eligibility and helps you get lower interest rates, while a low score can result in rejections or higher costs.

Does paying interest affect Credit Score?

No, paying interest alone doesn’t affect your credit score. What matters is the timely repayment of the full balance or the minimum due.

What should I do if I notice errors on my credit report?

If you spot errors, contact the credit bureau immediately to file a dispute. Correcting errors can help improve your credit score.

Can paying off a loan early help my Credit Score?

Yes, paying off a loan early reduces your debt, positively impacting your credit utilisation and payment history, which may boost your credit score.

How often should I check my Credit Score?

Check your credit score every three to six months to monitor your progress and ensure there are no unexpected issues or errors.