5 ways to increase your credit score

In today’s world, credit has become a vital part of how we manage our finances. Whether we want to buy a car, own a home, or apply for a credit card, lenders use a special number called a credit score to decide if we are trustworthy borrowers. 

Credit scores play a major role in determining whether we can get a loan and what interest rate we’ll be charged. 

In this blog, we’ll explore what credit scores are, how they are calculated, and how you can develop sound credit to ensure a strong financial future.

So, what exactly is a credit score? Think of it as a financial report card. It’s a number that shows how well you handle money and repay debts. 

Lenders, like banks and credit card companies, use this score to understand if you’re likely to pay back what you borrow on time. 

The higher your credit score, the more confident they feel about lending you money at better terms, like at lower interest rates.

On the other hand, a lower credit score might make it harder to get loans or credit cards, and if you do get them, you might be charged higher interest.

How is Credit Score Calculated?

Calculating a credit score involves carefully looking at a person’s credit history and how they handle money. A credit rating agency usually collates this information. In India, credit bureaus such as CIBIL, Experian, Equifax, and CRIF High Mark use advanced methods to assess different factors and create credit scores.

While the exact way they calculate scores may vary slightly, the main principles are similar. A cibil credit score might be different from a CRIF credit score.

Here are the important factors that determine a credit score:

Payment History (35% weightage)

This is the most crucial factor. It checks if you’ve been paying bills and loans on time. Late payments or defaults can harm your score, but making payments on schedule boosts it. Considering this is the maximum weightage, remember to spend credit sensibly.

Credit Utilization (30% weightage)

It looks at how much of your credit limit you use. Keeping your credit utilization rate low, ideally below 30%, is better for your score. High use may be seen as a risk by lenders. This contributes to the utilization score.

Credit History Length (15% weightage)

Having a longer credit history is better, as it shows how you’ve managed credit over time. Keeping old and well-handled accounts open is beneficial to your current score.

Credit Mix (10% weightage)

Having different types of credit, like credit cards and loans, can positively impact your score. Make sure to handle all credit responsibly.

New Credit Applications (10% weightage)

When you apply for new credit, it leads to a “hard inquiry” on your report. Multiple inquiries in a short time may lower your score slightly. So, apply for credit only when you really need it.

Negative marks, such as defaults or bankruptcy, severely impact your credit score and take time to recover from.

Credit bureaus gather information from various sources to create a detailed credit report for each person. Then, they use their special methods to analyze the data and create a credit score.

The scores typically range from 300 to 900. Higher scores mean lower risk and better creditworthiness, while lower scores might lead to higher interest rates or credit denials.

Remember that different credit bureaus may have slightly different scoring models, which can result in slight variations in credit scores between them.

Credit Score in India

In India, there are credit bureaus like CIBIL, Equifax, Experian, and CRIF High Mark that keep track of people’s credit information from banks and lenders. They use this data to create credit reports and scores for individuals.

As of 2021, the average credit score in India was about 750. According to Mint, In the financial year 2021-22, the average credit score was 715. (report by OneScore, a platform that monitors credit scores). This score is essential because it shows how well people manage their finances and how trustworthy they are as borrowers.

5 ways to improve credit score 

Pay Bills on Time

Sound too obvious, doesn’t it? Making sure to pay your credit card bills and loan payments on time is super important. That means, you make your Emi payments on time as well. When you pay your bills promptly, it shows that you’re responsible with your money, and it helps to boost your credit score.

On the other hand, if you keep missing payments or paying late, it can bring down your score.

Example: Imagine you have a credit card with a due date of the 10th of every month. To maintain a good credit score, make sure you pay the full amount or at least the minimum payment on or before the 10th of each month.

Keep Credit Card Usage Low

It’s best not to use too much of your credit card limit. If you have a credit card with a ₹50,000 limit, try not to spend more than ₹15,000 to ₹20,000 on it. Keeping your credit card balance low is better for your credit score because it shows you’re not overly reliant on credit.

Example: Let’s say your credit card has a ₹50,000 limit, and you’ve used ₹30,000 of it. Try to pay off some of the balance before your statement date. This way, when the credit bureau checks, it shows a lower utilization rate.

Avoid Applying for Too Much Credit

Every time you apply for a loan or a new credit card, the lender checks your credit history, and this is called a “credit inquiry.”

Having too many inquiries in a short period can make lenders think you’re desperate for credit, which can lower your credit score. So, only apply for credit when you genuinely need it. Don’t open multiple credit card accounts.

Example: If you’ve been shopping around for loans or credit cards, try to do it within a short time frame. Multiple credit inquiries in a short period are often considered rate shopping and may not have a big impact on your credit score.

Have Different Types of Credit

Having a mix of different types of credit can be good for your credit score. This means having both revolving credit (like credit cards) and installment credit (like loans). It shows that you can handle different types of credit responsibly.

Example: If you already have a credit card, you can also consider taking a small personal loan. By paying it back on time, you can show that you can manage both credit card debt and installment loan payments.

Check Your Credit Reports Regularly

Get your credit reports from time to time and go through them carefully. Look for any mistakes or errors in the report. If you find any, report them to the credit bureau so that they can be corrected.

Errors on your credit report can negatively impact your credit score, so it’s essential to keep an eye on it.

Example: You can request a free credit report once a year from each of the credit bureaus. Use can also online platforms that offer credit monitoring services to keep track of your credit report regularly. Keep a check on your credit score regularly too.

By following these simple tips and being responsible with credit, you can improve and maintain a healthy credit score, which will open better financial opportunities for you in the future.

Why Should You Maintain a Good Credit Score?

Though the above-mentioned points are surely easy to execute, here’s a little more motivation for you why you should keep going. 

Loan Approvals

Maintaining a good credit score is essential because it increases the likelihood of getting approved for loans. Lenders like banks and financial institutions use your credit score to determine how reliable you are as a borrower.

With a higher credit score, you stand a better chance of having your loan applications approved. This means you can access the funds you need for various purposes, such as buying a home, getting a car, or financing your education.

Lower Interest Rates

A good credit score helps you get approved for loans and comes with another significant advantage – lower interest rates. When you have a good credit score, lenders see you as less risky.

As a result, they are more willing to offer you loans at lower interest rates. This means you’ll end up paying less interest over time, saving you money in the long run. On the other hand, if your score is low, lenders may see you as a higher risk and charge you higher interest rates, making your loans more expensive.

Credit Card Benefits

With a good credit score, you can qualify for premium credit cards that come with attractive rewards, cashback offers, travel benefits, and other perks.

These premium credit cards often offer better deals and privileges that can enhance your lifestyle and save you money on everyday expenses. So, a good score can open the door to exclusive credit card options and valuable benefits that may not be available with lower scores.

A lot of people, also wonder which is better, Credit Card or BNPL apps (Buy Now Pay Later)? That depends on each person’s spending habits.

In Summary

By understanding how credit scores are calculated and adopting responsible financial habits, you can maintain a healthy score. 

You can’t improve your credit score overnight. Regularly monitoring your credit score and taking proactive steps to improve it can lead you toward a secure and prosperous financial future. 

Remember, building a good credit score is a journey, and with patience and perseverance, you can achieve financial success. Download Vittae and build your money story today!

FAQs:

a. How to Increase Credit Score Fast?

Increasing your score quickly requires consistent efforts, such as paying off outstanding debts, reducing credit card balances, and maintaining a flawless payment record.

b. How Often Should I Check My Credit Score?

It’s recommended to check your score and report at least once a year to ensure accuracy and detect any issues promptly.

c. How Long Does It Take to Improve a Credit Score?

The time to improve a score varies depending on individual financial circumstances. However, with responsible credit behavior, you can see noticeable improvements within six to twelve months.