Know how to keep your credit score high

Mumbai: Credit score is an important factor for getting loans and services.  It not only decides whether your loan will be approved or rejected but is also an important facet of the process that decides the interest rate of your loan. The stronger the credit score, the better the interest rate you will get from the bank.

There are four main credit bureaus in India – Credit Information Bureau (India) Limited (CIBIL), Equifax, Experian and CRIF Highmark. However, CIBIL is the most prominent among them.

Anything above 750 is considered to be an excellent CIBIL score while one in the range of 650-749 is considered to be good. A score in the range of 500-649 is considered average and below 499 is poor.

A high credit score (typically above 750) enhances the chances of getting loans and credit cards at favourable terms, while a low score can lead to loan rejections or higher interest rates.

Several factors can negatively impact a credit score in India:

1. Late or Missed Payments: One of the primary reasons for a low credit score is failing to make timely payments on loans or credit cards. Even a single missed payment can bring down the score significantly.

Also Read: Know How to Split Bills Using Paytm, Google Pay, And PhonePe 

2. High Credit Utilisation Ratio: If a person frequently maxes out their credit limit or uses more than 30-40% of their available credit, it indicates high dependency on credit, which lowers the score.

3. Multiple Loan Applications: Applying for multiple loans or credit cards within a short span can lead to multiple hard inquiries, reducing the credit score.

4. Defaulting on Loans: Non-repayment or settlement of loans negatively impacts credit history, making future borrowing difficult.

5. Errors in Credit Report: Sometimes, incorrect information in the credit report, such as a wrongly recorded missed payment or an unrecognised loan, can lower the score.

6. Lack of Credit History: Not having any credit (loans or credit cards) can also result in a low or no credit score, making it difficult for lenders to assess a person’s creditworthiness.

7. Frequent Opening and Closing of Credit Accounts: Constantly opening and closing credit accounts can create instability in credit behaviour, impacting the score negatively.

Here’s how one can keep their score high:

1. Pay Bills on Time: Timely payment of EMIs, credit card bills, and utility bills ensures a positive credit history. If any EMI is pending and overdue, clear that as soon as possible.

2. Maintain a Low Credit Utilisation Ratio: Ideally, one should keep their credit utilisation below 30% of the available limit to show responsible credit usage.

3. Monitor Credit Report Regularly: Checking credit reports periodically helps identify and rectify errors that might be affecting the score.

4. Limit Loan Applications: Applying for credit only when necessary prevents multiple hard inquiries and safeguards the credit score.

5. Diversify Credit Mix: A healthy mix of secured (home/car loans) and unsecured credit (credit cards/personal loans) contributes positively to the credit score.

6. Maintain Old Credit Accounts: Keeping old credit cards open (even if not in use) can help maintain a long credit history, which positively impacts the score.

7. Avoid Settlements and Defaults: Instead of defaulting on a loan, one should try restructuring repayment plans with the lender to prevent a negative impact on the score.