Maintaining a good credit score is essential for financial stability and access to various credit opportunities. A credit score represents an individual's creditworthiness and plays a crucial role in determining loan approvals, interest rates, and other financial terms. As a trusted financial company in India, Shriram Finance understands the importance of credit scores and offers various credit solutions to help individuals improve their scores.
Shriram Finance is a trusted partner in your journey for financial management and well-being. If you are searching for financial solutions to suit your personal or business needs, choose Shriram Finance for high-yielding deposit plans and loans. Our suite of loans includes business loans, personal loans, commercial vehicle loans, used car loans, two-wheeler loans, car loans, etc. We provide both fixed investment plan and fixed deposit plans.
In this article, we will explore the top five credit score improvement factors. We will discuss what makes up your credit score, the factors that affect it, and what you can do for credit score improvement. thereby increasing your creditworthiness. You must have a good credit mix, and a strong repayment history, besides an optimum credit utilisation ratio for building a healthy credit profile.
What is a Credit Score?
A credit score is a numerical representation of your creditworthiness. In India, credit bureaus such as the Credit Information Bureau of India Ltd. (CIBIL™) maintain your credit scores. The credit score ranges between 300-900, with a good score considered to be 750+ in India. Lenders widely use these scores to assess the likelihood of borrowers repaying their loans.
Some Negative Factors Affect Your Credit Score
Several factors can negatively impact a person's credit score. It is important to understand these factors to effectively work towards improving one's creditworthiness.
Improper Credit Utilisation: Credit utilisation refers to the ratio between the sanctioned credit limit and its usage. Using a high percentage of the available limit can harm your credit score.
History of Past Repayment: Lenders closely examine your repayment history. Regularly paying debts in full and on time contributes positively to your credit standing, while defaults or irregular payments have a negative impact.
Length of Debt-servicing: The length of time you have been using and servicing credit affects your credit score. Individuals with longer credit histories generally have higher scores compared to new applicants.
The Right Mix of Credit: Having a diversified credit portfolio, including credit cards, personal loans, and secured loans, demonstrates responsible borrowing behaviour. Relying solely on one source of credit can negatively impact your score.
New Credit Applications: Frequent applications for new credit can signal financial stress or an urgent need for funds. Multiple rejections can reflect poorly on your credit score.
Factors Behind Credit Score Improvement
To improve your credit score, consider the following key factors:
Check Your Credit Score Before Applying: Before applying for a loan or credit card, it is advisable to check your credit score. This helps ensure there are no negative factors affecting your score and gives you confidence while applying. Shriram Finance offers you the facility to check your credit scores directly through its website or you can check for the same in Shriram One application.
Be Punctual in Your Credit Card Payments: Timely repayment of credit card bills and loan instalments is vital for maintaining a good credit history. If faced with financial constraints, you can seek short-term loans from friends and relatives to meet these deadlines.
Create a Credit History if you are Seeking Credit for the First Time: First-time borrowers may not have a credit history, making it difficult for banks to assess their creditworthiness. To build a positive credit history, you can open a fixed deposit and obtain a secured credit card against it. Making regular payments on this card will help improve your credit scores.
Spread Usage Across Different Card Limits: Rather than relying heavily on one credit card, you should spread expenditure across multiple cards. This showcases responsible borrowing behaviour and positively impacts your score.
Avoid Unnecessary Disputes: While it is important to rectify errors or fraudulent transactions on your credit card statements, raising disputes over late payments or penalty charges can harm your credit score. You must address these issues directly with the credit card issuer's customer care department.
Ways to Improve Your Credit Score
Improving your credit score requires proactive measures and responsible financial behaviour. Consider the following steps:
Regularly Monitor Your Credit Report: Reviewing your credit report helps identify any errors or discrepancies that may be negatively impacting your score. You can improve your overall creditworthiness by rectifying these issues.
Maintain a Low Credit utilisation Ratio: Aim to keep your credit utilisation ratio below 30%. This means using only a portion of your available credit limit, which demonstrates responsible borrowing behaviour.
Pay Bills on Time: Timely payment of bills, including utility bills, EMIs, and other loan repayments, is crucial for maintaining a good credit history. Late payments can significantly impact your score.
Reduce Debt: Actively work towards reducing your outstanding debt by making regular payments and avoiding accumulating excessive debt and instalment credit. This demonstrates financial discipline and positively affects your creditworthiness.
Avoid Excessive New Credit Applications: Applying for new credit frequently can raise concerns among lenders about your financial stability. Limit new applications and focus on improving existing lines of credit.
Seek Professional Assistance if Needed: If you are struggling to improve your credit score, consider seeking guidance from reputable credit counselling services. These professionals can provide tailored advice based on your specific financial situation.
Manage Credit Scores and Credit Reports
Managing both credit scores and credit reports is essential for maintaining a healthy financial profile. By understanding how lenders use credit scores, individuals can make informed decisions when applying for loans or financing options.
CIBIL plays a crucial role in keeping track of individual credit scores through data shared by banks and financial institutions. Lenders rely on the TransUnion Score and CIBIL's™ Credit Information Report (CIR) to assess an individual's creditworthiness. They use these data points, along with other required documentation, to determine eligibility and terms for approving your loan such as a personal loan or student loan.
How do You Keep Track of Your Credit Score?
Keeping track of your credit score involves the monthly sharing of credit data by banks and financial institutions with organisations like CIBIL™. This data is used to generate your Credit Information Report (CIR). Lenders rely on the CIR to assess creditworthiness during the loan approval process. helping them make informed lending decisions.
How do Lenders Use Credit Scores?
Lenders utilise TransUnion Score and the Credit Information Report (CIR) to evaluate your eligibility for a loan. These data points, combined with other necessary documentation, play a crucial role in determining whether an applicant qualifies for a loan, the loan amount, and the terms and conditions associated with it.
Conclusion
Maintaining a good credit score is crucial for accessing financial opportunities and securing favourable terms on loans. By focusing on the top five credit score improvementfactors discussed in this article, you can actively work towards improving your creditworthiness. Shriram Finance, a trusted financial company in India, offers various credit solutions that can assist you in your journey towards a better credit score. We encourage you to take proactive steps towards managing and improving your credit scores and consider seeking guidance from Shriram Finance if needed. If you are looking to avail of a personal loan.Apply here.
Key Highlights:
- Check your credit score before applying for new loans or credit cards. Be punctual in paying your loan instalments and credit card bills.
- If you do not have a previous credit history, create one by getting a secured loan against a fixed deposit.
- Utilise multiple sources of credit wisely instead of relying heavily on one.
- Avoid raising unnecessary disputes, especially for late payments.
FAQs
1. How can I build my credit score faster?
To build your credit score faster, focus on maintaining a good repayment history by making timely payments on your loans and credit cards. Keep your credit utilisation ratio low by using only a portion of the total credit available to you. It is also important to maintain a diverse credit mix and avoid applying for new credit frequently.
2. Can I get credit with no score at all?
Yes, even if you have no credit score, you can still get credit. One way is to open a fixed deposit and take a credit card against it. By making regular payments on this card, you can start building your credit history and improve your score over time.
3. What is the best credit score?
In India, the best credit score is considered to be 750+ according to the Credit Information Bureau of India Ltd. (CIBIL™). A higher score indicates a better credit standing and increases the chances of loan approvals at competitive interest rates.
4. Which bill payments can hurt my credit score?
Late or missed payments on loans, mortgages, credit cards, and any other type of debt can negatively impact your credit score. It is important to ensure that you make all your bill payments on time to maintain a good credit standing.
5. Can service accounts impact my credit score?
No, service accounts such as electricity bills, telephone bills, or internet bills do not impact your credit score directly. However, if these bills are not paid and are sent to collections, it can have an indirect impact on your creditworthiness.
