Pay Bills On Time, Every Single Time
This is the golden rule of credit health. Your repayment history is the most significant factor in your CIBIL score. Lenders want to see that you are a reliable borrower. Even a single missed or delayed payment on a credit card bill or a loan EMI can negatively
impact your score. To avoid this, set up automatic payments for your recurring dues or place reminders in your calendar. Always aim to pay the full amount due, not just the minimum, as this demonstrates financial discipline and helps you avoid accumulating interest.
Keep Credit Utilisation Low
Your Credit Utilisation Ratio (CUR) is the percentage of your available credit that you are using. For example, if your credit card limit is ₹1,00,000 and you have spent ₹25,000, your CUR is 25%. Financial experts recommend keeping this ratio below 30% across all your credit products. A consistently high CUR can signal to lenders that you are over-reliant on credit, which may be perceived as a risk. To manage this, monitor your spending, consider making partial payments before your statement is generated, or request a credit limit increase if you have a good track record, which can also lower your utilisation ratio.
Build a Healthy Credit Mix
Lenders appreciate seeing that you can responsibly manage different types of credit. A healthy credit mix includes both secured loans (like a car or home loan, which are backed by an asset) and unsecured loans (like personal loans and credit cards). This diversity shows financial maturity. However, this doesn't mean you should apply for loans you don't need. The goal is to build a varied credit profile over time, demonstrating your ability to handle different repayment structures responsibly. A portfolio heavily skewed towards unsecured loans might be viewed less favourably.
Limit Frequent Loan Applications
Every time you apply for a new loan or credit card, the lender performs a 'hard inquiry' on your credit report. While a single inquiry has a minor impact, multiple hard inquiries in a short period can lower your score. It can make you appear 'credit hungry' or suggest that you are facing financial instability. Before applying for new credit, research the eligibility criteria to improve your chances of approval on the first try. Space out your applications and only apply for credit when you genuinely need it.
Monitor Your Credit Report Regularly
You are entitled to a free full credit report from each of the credit bureaus in India once a year. It's a good practice to check your report periodically. This helps you monitor your score and check for any inaccuracies or fraudulent activity, such as loans or credit cards you didn't apply for. An error on your report could be unfairly dragging down your score. If you find a mistake, you should dispute it with the credit bureau immediately to get it corrected. Checking your own score is a 'soft inquiry' and does not lower it, so you can and should do it regularly.
Be Patient and Maintain Old Accounts
Building a good credit score doesn't happen overnight; it takes time and consistent good habits. The length of your credit history is a factor in your score, so having older, well-managed accounts is beneficial. Therefore, think twice before closing an old credit card, especially if it has no annual fee. Closing an old account can shorten your credit history's average age and increase your overall credit utilisation ratio, both of which can negatively affect your score.
