The Most Important Factors in Your Credit Score
Before diving into payment strategies, it’s crucial to understand what makes up your credit score. In India, credit bureaus like CIBIL, Experian, and others calculate your score (typically from 300 to 900) based on several factors. The single most important
element is your payment history, which accounts for a significant portion of your score. Consistently paying your bills on time is non-negotiable. However, another hugely influential factor is your credit utilisation ratio (CUR), which can make up around 30% of your score. This is where the multiple payments strategy comes into play.
Understanding the Credit Utilisation Ratio (CUR)
Your credit utilisation ratio is the percentage of your available credit that you are currently using. For example, if you have a single credit card with a limit of ₹1,00,000 and your outstanding balance is ₹40,000, your CUR is 40%. Lenders generally like to see a CUR below 30%. A high ratio can suggest to lenders that you are over-reliant on credit, which might make you seem like a riskier borrower. People with the highest credit scores often keep their utilisation even lower, sometimes under 10%. Keeping this number low signals that you can manage credit responsibly without depending on it too heavily.
How Multiple Payments Change the Game
Here’s the secret: credit card companies typically report your balance to the credit bureaus only once a month. This reported balance is usually the one that appears on your statement on the 'statement closing date'. It is this reported balance that is used to calculate your credit utilisation for that month. So, even if you pay your entire ₹40,000 balance in full by the due date, your credit report for that month will still show that you used 40% of your limit. While paying in full is excellent for avoiding interest, it doesn't change the utilisation figure that was already reported. By making a payment before your statement closing date, you can manually lower the balance that gets reported to the bureaus. This directly lowers your official CUR for the month, which can positively influence your credit score.
A Practical Strategy in Action
Let's revisit the example of a ₹1,00,000 credit limit. Suppose you spend ₹70,000 in a billing cycle. If you wait for your statement and pay it off, your reported utilisation will be a high 70%. Now, consider this alternative: a few days before your statement closing date, you make a payment of ₹50,000. When the credit card company generates your statement, the balance will only be ₹20,000. That is the amount that gets reported to the credit bureaus. Your CUR for that month suddenly drops to a much healthier 20%. You can then pay off the remaining ₹20,000 by the payment due date to avoid interest. You’ve spent the same amount of money, but by timing your payments strategically, you have presented a much better financial picture to the credit reporting agencies.
Is This Aggressive Strategy for You?
While this technique can be powerful, it’s not necessary for everyone. The number of payments you make isn't directly tracked by credit bureaus; it's the result—a lower reported balance—that matters. This strategy requires more active management of your finances. You need to know your statement closing date and have the cash flow to make payments before your bill is even generated. For most people, simply paying the bill in full by the due date and keeping overall spending well below their credit limit is enough. However, if you are looking to maximise your score, are planning a large purchase like a home or car loan where every point matters, or regularly have high spending on a card, making multiple monthly payments is a potent tool to keep your credit utilisation in check and your score climbing high.
