A credit score reflects a person’s financial credibility. It ranges from 300 to 900, and if your score is 750 or above, banks and financial institutions are more likely to offer you loans and credit cards at lower interest rates. However, a low credit score can make loan approvals difficult.
So, how can you improve your credit score? By following some simple and effective strategies, you can boost your score within 6-12 months.
1. Pay Your Bills on Time – The First Step to a Better Score
Missing credit card payments or loan EMIs can lower your credit score. This happens because payment history influences 35% of your credit score.
✔ Solution:
- Always pay your credit card bills in full every month. Avoid paying only the minimum amount.
- Set up auto-pay for EMIs and other bills to ensure timely payments.
- If you miss a payment, talk to your bank to avoid late payment fees.
2. Keep Your Credit Utilization Below 30% – Avoid Overspending
If your credit limit is ₹1,00,000 and you spend ₹70,000 every month, your Credit Utilization Ratio becomes 70%, which is considered high. Banks may see you as credit-dependent, affecting your score negatively.
✔ Solution:
- Keep your credit utilization below 30% of your total limit.
- Request a credit limit increase from your bank to reduce your utilization ratio.
- If possible, get another credit card and distribute expenses to maintain a lower utilization rate on each card.
3. Keep Your Old Credit Card Active – Build a Long Credit History
If you close a 5-year-old credit card, your credit history gets shorter, reducing your score. A long credit history strengthens your credit profile.
✔ Solution:
- Keep your oldest credit card active, even if you rarely use it.
- Make small purchases on it and pay them off on time to maintain an active history.
4. Avoid Frequent Loan and Credit Card Applications
Every time you apply for a loan or credit card, the bank checks your credit report, which is called a Hard Inquiry. Too many hard inquiries negatively impact your credit score.
✔ Solution:
- Apply for a new loan or credit card only when necessary.
- If you need a loan, check for Pre-approved Offers to avoid hard inquiries.
5. Check Your Credit Report and Fix Errors
Sometimes, errors in your credit report can lower your score. Incorrect information due to bank mistakes or fraud can affect your creditworthiness.
✔ Solution:
- Get a free credit report from CIBIL, Experian, or other credit bureaus at least once a year.
- If you find any incorrect entries or fraud transactions, report them immediately.
- Contact the bank and credit bureau to rectify any errors.
6. Reduce Your Debt and Pay Off Old Loans Early
Having too many loans can lower your score. Banks check whether your EMIs exceed 40-50% of your income. If they do, it may be difficult to get new loans.
✔ Solution:
- If you have multiple loans, pay off the smallest ones first.
- Make extra payments when possible to prepay your loan and close it early.
- Avoid taking excessive debt and keep your EMI burden low.
7. Maintain a Mix of Credit Accounts – Don’t Rely Only on Credit Cards
A diverse credit mix improves your credit score. If you only have credit cards and no loans, banks may consider you dependent on short-term credit.
✔ Solution:
- If you have never taken a loan, consider a small personal loan and repay it on time.
- Maintain a balance of Home Loans, Auto Loans, Personal Loans, and Credit Cards.
- A good credit mix helps improve your score faster.
Adopt Good Financial Habits and Improve Your Credit Score
Improving your credit score is not an overnight process, but by following the right strategies, you can boost it within 6-12 months. Paying your bills on time, keeping credit utilization low, maintaining old credit history, and avoiding unnecessary loans can gradually improve your score.
If you want to achieve a 750+ credit score, follow these steps. A higher score not only makes loan approvals easier but also helps you get better interest rates and higher credit limits.
Disclaimer:
The views and opinions expressed by the author are for informational and educational purposes only and should not be considered financial, investment, or legal advice. SaveFundsNow does not provide investment recommendations or endorse any financial products.
Investing in financial markets is subject to market risks. Readers are advised to conduct their own due diligence, Discuss with your SEBI Regd Financial Advisor, and make investment decisions based on their own research.
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