Your Credit Score Explained
Think of your CIBIL score as your financial report card. This three-digit number, ranging from 300 to 900, tells lenders how responsible you are with credit. A high score (typically 750 and above) signals that you are a reliable borrower, opening doors
to easier loan approvals for a car or home, better credit cards, and lower interest rates. For young adults just starting their financial journey, building a strong credit history from day one is essential. Two of the most important factors that determine your score are your payment history (paying bills on time) and your credit utilisation ratio.
The Key Factor: Credit Utilisation Ratio
Your Credit Utilisation Ratio (CUR) is the percentage of your available credit limit that you are currently using. It accounts for a significant portion—around 30%—of your credit score calculation. For example, if you have one credit card with a limit of ₹50,000 and you spend ₹25,000 in a month, your CUR is 50%. Financial experts generally recommend keeping this ratio below 30% to maintain a healthy score. A high CUR can suggest to lenders that you are overly reliant on credit, which they view as a risk, potentially lowering your score.
The Flaw in a Single End-of-Month Payment
Most people believe that as long as they pay their entire credit card bill by the due date, their score will be in top shape. While paying in full is vital to avoid interest charges, it doesn't always protect your credit utilisation ratio. Here’s why: most credit card issuers report your balance to the credit bureaus (like CIBIL) on your statement closing date, which is before your payment due date. So, if you've used a large portion of your credit limit, a high balance gets reported, resulting in a high CUR for that month—even if you pay it all off a week later. This can slow down your score-building progress, especially when your credit history is short.
The Split Payment Strategy in Action
This is where splitting your payments comes in. Instead of making one large payment before the due date, you make at least two smaller payments within the same billing cycle. The strategy is simple: make one payment before your statement closing date, and a second payment before the final payment due date. For instance, if your statement is generated on the 20th of the month and your due date is the 10th of the next month, you could make a payment on the 15th to lower your balance, and then pay off the remainder by the 10th. This simple action can have a powerful impact.
Why This Accelerates Score Growth
By making a payment before your statement date, you manually reduce the balance that your card issuer reports to the credit bureaus. This results in a lower, healthier credit utilisation ratio being recorded for that month. When credit scoring models see a consistently low CUR, it signals responsible credit management, which can lead to a quicker increase in your score. For young cardholders with a limited credit history, every single data point matters. Consistently reporting a low utilisation ratio month after month provides positive data that helps build a strong credit profile much faster than just making a single payment.
How to Implement This Habit
Putting this into practice is straightforward. First, identify your statement closing date; you can find it on your monthly statement or by calling your bank. Set a calendar reminder a few days before this date to make a partial payment. You can then set up an auto-payment to clear the remaining statement balance by the due date, ensuring you never miss a payment and avoid interest charges. Even if you can't pay the full amount twice, paying down a portion of your balance before the statement date still helps lower your reported utilisation. The key is consistency in managing how much of your limit is reported each month.
