Improving Your Credit Score

Your credit score affects everything from loan approvals to interest rates. Here’s how to rebuild and maintain a healthy score.

Understanding Credit Scores in India

What Is a Credit Score?

A 3-digit number (300-900) representing your creditworthiness.

Credit Bureaus in India

CIBIL is most commonly used by lenders in India.

Getting Your Free Report

RBI mandates one free report per year from each bureau:

• CIBIL: Free annual report at cibil.com
• Others: Also offer free annual reports

Check at least once per year.

What Affects Your Score

Score Components

Payment History (35%)

Most important factor.

One missed payment can take years to recover from.

Credit Utilization (30%)

How much of your available credit you’re using.

Utilization = (Credit Used / Credit Limit) × 100

Example:

• Credit limit: ₹1,00,000
• Balance: ₹40,000
• Utilization: 40%

Keep under 30% for best score.

Credit History Length (15%)

• Longer history = better
• Keep old accounts open
• Age of oldest account matters
• Average age of all accounts matters

Credit Mix (10%)

Having different types of credit:

• Credit cards
• Home loan
• Car loan
• Personal loan

Mix shows you can handle various credit types.

New Credit (10%)

• Each hard inquiry slightly lowers score
• Multiple applications = desperation signal
• New accounts lower average age

Quick Wins to Improve Score

1. Pay All Bills on Time

Action: Set up auto-pay for all EMIs and credit card minimums.

Impact: Prevents the most damaging factor (late payments).

2. Reduce Credit Utilization

Action: Pay down credit card balances below 30%.

Example:

• Current: ₹45,000 balance on ₹50,000 limit (90%)
• Target: ₹15,000 balance (30%)
• Need to pay: ₹30,000

Impact: Can see 20-50 point improvement in weeks.

3. Don’t Close Old Cards

Action: Keep your oldest credit card active.

Why: Closing reduces credit history length and total available credit.

Instead: Use it for small purchases, pay in full.

4. Check for Errors

Action: Review credit report for errors.

Common errors:

• Wrong account listed
• Paid account showing unpaid
• Wrong personal information
• Duplicate accounts

Dispute errors with bureau and creditor.

5. Become Authorized User

Action: Get added to family member’s old, well-managed card.

Impact: Their positive history can help your score.

Long-Term Score Building

Month-by-Month Strategy

Month 1-3: Foundation

• Set up auto-pay for everything
• Pay down high utilization cards
• Check reports for errors
• Dispute any inaccuracies

Month 4-6: Building

• Continue on-time payments
• Keep utilization under 30%
• Don’t apply for new credit
• Let existing accounts age

Month 7-12: Strengthening

• Add positive credit if needed
• Consider secured card if no credit
• Maintain all good habits
• Check report quarterly

If Starting from Zero

No credit history? Build it:

1. Secured Credit Card

   • Deposit becomes your limit
   • Use responsibly, pay in full
   • Converts to regular card after 6-12 months

2. Credit Builder Loan

   • Small loan, payments reported
   • Available from some NBFCs

3. Authorized User

   • Get added to family member’s card
   • Their history helps yours

4. Small Personal Loan

   • Take small loan, repay on time
   • Builds payment history

If Rebuilding After Damage

Severe damage (settlements, defaults, collections):

Recovery strategy:

1. Pay all current obligations on time
2. Reduce utilization
3. Don’t apply for new credit for 6-12 months
4. Consider secured card to rebuild
5. Be patient—time heals credit

Credit Score Myths

Myth 1: Checking Score Hurts It

False. Checking your own score is a “soft inquiry” and doesn’t affect it.

Myth 2: Closing Cards Helps

False. Closing cards reduces available credit (raises utilization) and shortens history.

Myth 3: You Need to Carry a Balance

False. Paying in full is best. You don’t need to pay interest to build credit.

Myth 4: Income Affects Score

False. Income is not part of credit score calculation. (But affects loan eligibility separately.)

Myth 5: Settling Is Same as Paying

False. “Settled” is negative mark. “Closed” or “Paid in full” is better.

Disputing Credit Report Errors

Common Errors to Look For

• Accounts that aren’t yours
• Wrong payment status
• Incorrect credit limits
• Duplicate accounts
• Wrong personal information
• Closed accounts showing open
• Paid debts showing unpaid

How to Dispute

Step 1: Download credit report from bureau

Step 2: Identify error and gather proof

Step 3: File dispute with bureau online or by mail

Step 4: Bureau investigates (30-45 days)

Step 5: Response received, report updated if valid

Step 6: Also dispute with creditor directly

Dispute Letter Template

Date: [Date]

To: [Credit Bureau]
Re: Dispute of Credit Report Information

I am writing to dispute the following information in my credit report:

Account Name: [Creditor Name]
Account Number: [Number]
Reported Information: [What's wrong]
Correct Information: [What it should be]

Enclosed is supporting documentation:
[List documents]

Please investigate this matter and correct my credit report accordingly.

Sincerely,
[Your Name]
[Your Address]
[PAN Number]

Advanced Credit Strategies

Utilization Hacks

Hack 1: Multiple payment dates

• Pay credit card before statement date
• Lower balance reported to bureaus
• Lower utilization shown

Hack 2: Request limit increase

• Call card company
• Request higher limit
• Same balance ÷ higher limit = lower utilization
• Don’t spend more!

Hack 3: Balance transfer timing

• Transfer balance to card that reports after billing
• Keeps utilization low on reporting date

Credit Building Tools

Secured Credit Cards:

Use for small purchases, pay in full.

Monitoring Your Score

How Often to Check

Free Monitoring Options

• CIBIL: Free annual report + subscription available
• Experian: Free report
• Credit card apps: Many show free scores
• Banking apps: Some provide score

What to Watch For

• Score changes (+/- 20+ points investigate)
• New accounts (identity theft?)
• Inquiries you didn’t authorize
• Status changes on accounts
• Errors or inaccuracies

Credit Score for Specific Goals

For Home Loan

Preparation:

• Start 6-12 months before applying
• Pay down other debts
• Don’t apply for new credit
• Fix any errors

For Credit Card

For Personal Loan

Key Takeaways

• Payment history is king — never miss payments
• Keep utilization under 30% — pay down balances
• Don’t close old accounts — history matters
• Check report annually — dispute errors
• Patience is required — scores take time to build
• Avoid new applications — when rebuilding
• Secured cards help rebuild — good starting point
• Monitor regularly — catch problems early

Next: Debt Settlement Options — When and how to settle debts for less.