A good credit score is indispensable to raisepersonal loans and credit cards. However, building a solid credit history doesn’t happen in a short time. It needs consistency and responsible financial habits. Here, we explain how one can build and improvecredit score over a period of time.
Building credit history: Steps to take
1.Use credit cards responsibly: One of the easiest ways to build credit is by getting a credit card. If you’re new to credit, start with a secured credit card (linked to a fixed deposit), a student credit card or a basic entry-level credit card from a reputed bank.
It is important to use only 30-40 per cent of your credit limit and make sure to pay the bill before the due date each month.
2.Clear all bills on time: Your payment history is the biggest factor in your credit score. Therefore, late payments for loans, credit cards can hurt your score. It is recommended to automate payments or set reminders to avoid missing deadlines.
3.Take a small loan: A small personal loan, consumer durable loan can help build your credit mix. The key is to never miss EMIs (equated monthly instalments) and pay them on time.
4.Keep your credit utilisation low:Credit utilisation is the percentage of your credit limit that you use. For instance, if you have a ₹10,00,000 limit and you have used ₹5,00,000, your utilisation is 50 per cent — which can negatively impact your score. Ideally, one should keep utilisation below 30 per cent to maintain a healthy credit profile.
5.Too many loans: Each time you apply for credit, lenders check your credit score . Several inquiries within a short period can reduce your score and make you seem credit-hungry. Apply only when necessary.
6.Maintain a long credit history: The longer your credit history, the better. Even if you don’t use a credit card very frequently, keep it active by buying small items and repaying them on a regular basis. Closing old credit accounts can shorten your credit history, thus affecting your score.
7.Check your credit report for errors: Banks and financial institutions may report incorrect data. So, you should check your CRIF High Mark credit reports at least once a year. If you find any errors, dispute them with the credit bureau.
Time it takes
Building a strong credit score takes a minimum of 6 to 12 months of good credit behavior. Conversely, if your credit score is poor, improving it can take even longer i.e., 12 to 24 months.
To sum up, a good credit score can not be built overnight. It can be done with patience and smart financial habits. So, whether you are planning to take a home loan, car loan, or simply want access to better financial products – maintaining a high credit score will always benefit you.
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