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Tata Capital > Blog > Shubh Chintak > Credit Score Sluggish? Elevate It with These Pro Tips!

Shubh Chintak

Credit Score Sluggish? Elevate It with These Pro Tips!

Credit Score Sluggish? Elevate It with These Pro Tips!

Your Credit or credit score represents your creditworthiness. It is a three-digit number that indicates your financial health and helps lenders gauge the risk of granting you loans, mortgages, credit cards, or other forms of credit. There are 4 credit bureaus in India which give these scores -

1. TransUnion CIBIL (Credit Information Bureau India Limited):

a. Pioneer in credit reporting.
b. Provides Credit Information Reports (CIR) and credit scores.
c. Utilized by financial institutions for loan approval decisions.

2. Equifax Credit Information Services:

a. Offers credit reports and credit scores.
b. Empowers lenders to make informed lending decisions
c. Monitors credit behavior and payment history.

3. Experian Credit Information Services:

a. Global credit bureau with a significant presence in India.
b. Provides credit reports and analytics to assist in risk assessment.
c. Helps individuals understand and improve their credit profiles.

4. CRIF High Mark:

a. Emphasizes predictive analytics for credit risk assessment.
b. Offers comprehensive credit reports and scores.
c. Assists lenders in managing credit portfolios effectively.

These credit bureaus play a crucial role in shaping India's financial landscape, promoting responsible
borrowing and lending practices. Maintaining a high credit score can open doors to numerous benefits, giving you access to lower interest rates, better terms, and higher credit limits. Therefore, it's crucial to understand what is a credit score, why it matters, and, most importantly, how you can improve it.

Understanding the importance of the credit score

The credit score typically ranges from 300 to 900. It is generated by credit bureaus like credit based on your credit history, credit utilisation, outstanding balances, etc. 

It is important because it provides lenders with a simple and standardised way to evaluate the risk of lending to you. A good credit score gives you the upper hand when negotiating terms with lenders, allowing you to ask for favourable terms or lower interest rates. This gives you more financial flexibility and saves you money in the long run.

Before you look at how to improve the Credit score, you must understand the various factors that affect it.

Factors affecting the credit score

Your credit score is a dynamic number that reflects your credit behaviour and financial responsibility. It is influenced by several factors that determine whether the score goes up or down. Understanding these factors will help you take control of your creditworthiness and make informed decisions to improve the credit score.

1. Payment history: Your payment history is the most critical factor that affects your credit score. Late or missed payments and defaults can significantly harm your score.

2. Credit utilisation: It is the ratio of your used credit to your total credit limit. A high utilisation rate indicates financial stress, bringing down your credit score.

3. Credit inquiries: Every time you apply for new credit, there is a hard inquiry on your credit report. Too many credit inquiries in a short period can significantly impact your credit score, raising red flags for lenders.

How to improve credit score?

Credit score improvement takes time and commitment, but the long-term financial benefits are worth the effort. Here are some actionable tips for how to increase your credit score:

1. Pay your dues on time

Your payment history is the most influential factor in your credit score. Therefore, making timely payments is essential to maintaining and improving it. You can do this by using simple strategies like:

-Using calendar alerts or payment apps to ensure you never miss a due date.

-Signing up for the autopay option so the payment automatically gets deducted from your bank account on the due date.

2. Don't close your old credit cards

The length of your credit history also affects your credit score. Lenders prefer borrowers with a longer track record of responsible credit use. Therefore, to build and maintain a positive credit history, keep your old credit cards open, even if you don't use them frequently. Closing them can shorten your credit history, negatively affecting your score. 

3. Be mindful of your credit limits

Your credit limits represent the maximum amount you can borrow on your credit cards. High balances against your limits suggest that you're heavily reliant on credit and may have trouble managing your finances. It can negatively impact your Credit score, even if you make all your payments on time. 

As a thumb rule, avoid maxing out your credit cards and keep your utilisation rate below 30% of your credit limits. For example, if you have a credit card with a limit of Rs. 50,000, try to keep your balance below Rs. 15,000.

4. Check your credit report for inaccuracies

Credit reports can contain errors, such as inaccurately reported late payments, accounts that don't belong to you, or incorrect personal information. This can negatively impact your Credit score and may indicate potential identity theft or fraud.

Evaluating your credit report regularly can help you identify and fix these inaccuracies timely. When reviewing your credit report, ensure all your personal details are accurate. Check the status, balances, and payment history of each account and verify that all credit inquiries are legitimate and authorised by you.

5. Maintain a healthy credit mix

A mix of different credit types can help improve your credit score. It shows your ability to handle different forms of credit responsibly. Maintain a healthy mix of unsecured loans like personal loans or credit cards and unsecured loans like home or auto loans.

This mitigates the risk for both the borrower and lender and shows that you're not overly reliant on a single type of credit. But remember, only take on new credit when it's necessary and manageable within your financial means.

Boost your credit score for better financial well-being

Your credit score reflects your financial responsibility and can significantly impact your financial journey. But there's no quick answer to how to increase credit score. By consistently practicing good financial habits, monitoring your credit report, and addressing errors or discrepancies promptly, you can achieve and maintain a healthy credit score.

Remember that improving your credit score is a journey, not a sprint. Patience and persistence are your allies. As you build a positive credit history, you'll gain access to better financial opportunities, lower interest rates, and the peace of mind that comes with financial security.

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