<p>Maintaining a credit score can seem like a daunting task. Many Indians, particularly those new to the workforce, don’t even know how their credit score is monitored. Meanwhile, older credit users are in a state of nerve-wracking worry about the wrong move negatively affecting their CIBIL or CRIF scores (the two organisations that track and report credit history).</p>.<p>If you’re new to the concept of credit score, let’s break down what a credit score is and how you can improve it.</p>.<p class="CrossHead Rag"><strong>What is a credit score?</strong></p>.<p>A credit score is a 3-digit number that positions you on a scale of poor to excellent borrowing habits. It is a score granted on the basis of how many loans/credit you’ve borrowed, if you pay back on time, and if you’re draining your resources by utilising them to the full.</p>.<p>Here's how you can improve your credit score:</p>.<p class="CrossHead Rag"><strong>Be disciplined about your payments</strong></p>.<p>This is the most foolproof way to keep your credit in good standing. Your credit score report rewards timely and full payments, so make sure you’re always paying loan EMIs and credit card bills on time. If you’re unsure about your ability to pay these in a timely manner, reduce your credit usage (a smaller loan amount, increasing the repayment window, and using only 9-10% of your card limit). </p>.<p class="CrossHead Rag"><strong>Diversify your credit portfolio</strong></p>.<p>Instead of taking out multiple loans of the same kind, diversify your credit portfolio so that the credit report marks you as a good borrower. Get a credit card instead of taking out personal loans. Use mortgages and vehicle loans even if you have the cash to pay in full. Not only is your credit score bound to improve (with timely payments) but the extra cash can be used for smart investments.</p>.<p class="CrossHead Rag"><strong>Old vs new credit cards</strong></p>.<p>Instead of applying for new credit cards and projecting yourself as a bad borrower, it is better to keep using existing cards. Only apply for new credit cards if the ROI on the membership is genuinely worth it. Using old cards until their expiration (and continuing to use the renewed card) helps establish a long and solid credit history — something that is preferred over randomised credit borrowing.</p>.<p class="CrossHead Rag"><strong>Monitor your credit report</strong></p>.<p>There is a myth that checking your credit report can cause your score to fall. However, this is not entirely true. CIBIL or CRIF might reduce a few points every time a lender or financial institution checks your credit score because they consider this as a marker of you trying to borrow more (points that increase when you start repayment). Checking your own score, on the other hand, does not affect it. Keeping an eye on your score can help you plan how to improve it, find out which loan/card is harming it the most, and also help you plan your future. Moreover, it is also a great way to ensure your credit history only includes legitimate loans initiated by you, and not any fraud using your identity to take out loans.</p>.<p class="CrossHead Rag"><strong>Elongate your good debt</strong></p>.<p>You might find yourself in a situation where you’re able to quickly pay off a loan in full or even make a big purchase without a loan. However, this does not help your credit score. Closing loans early — while perfectly legal and free as mandated by the RBI — can cause your credit score to reduce, since you minimise your credit portfolio. Unless you’re moving your loan to a more affordable interest rate, it is better to keep paying the loan in a timely fashion. </p>.<p><span class="italic">(<em>The writer is the chief executive officer and co-founder of Volopay</em>)</span></p>
<p>Maintaining a credit score can seem like a daunting task. Many Indians, particularly those new to the workforce, don’t even know how their credit score is monitored. Meanwhile, older credit users are in a state of nerve-wracking worry about the wrong move negatively affecting their CIBIL or CRIF scores (the two organisations that track and report credit history).</p>.<p>If you’re new to the concept of credit score, let’s break down what a credit score is and how you can improve it.</p>.<p class="CrossHead Rag"><strong>What is a credit score?</strong></p>.<p>A credit score is a 3-digit number that positions you on a scale of poor to excellent borrowing habits. It is a score granted on the basis of how many loans/credit you’ve borrowed, if you pay back on time, and if you’re draining your resources by utilising them to the full.</p>.<p>Here's how you can improve your credit score:</p>.<p class="CrossHead Rag"><strong>Be disciplined about your payments</strong></p>.<p>This is the most foolproof way to keep your credit in good standing. Your credit score report rewards timely and full payments, so make sure you’re always paying loan EMIs and credit card bills on time. If you’re unsure about your ability to pay these in a timely manner, reduce your credit usage (a smaller loan amount, increasing the repayment window, and using only 9-10% of your card limit). </p>.<p class="CrossHead Rag"><strong>Diversify your credit portfolio</strong></p>.<p>Instead of taking out multiple loans of the same kind, diversify your credit portfolio so that the credit report marks you as a good borrower. Get a credit card instead of taking out personal loans. Use mortgages and vehicle loans even if you have the cash to pay in full. Not only is your credit score bound to improve (with timely payments) but the extra cash can be used for smart investments.</p>.<p class="CrossHead Rag"><strong>Old vs new credit cards</strong></p>.<p>Instead of applying for new credit cards and projecting yourself as a bad borrower, it is better to keep using existing cards. Only apply for new credit cards if the ROI on the membership is genuinely worth it. Using old cards until their expiration (and continuing to use the renewed card) helps establish a long and solid credit history — something that is preferred over randomised credit borrowing.</p>.<p class="CrossHead Rag"><strong>Monitor your credit report</strong></p>.<p>There is a myth that checking your credit report can cause your score to fall. However, this is not entirely true. CIBIL or CRIF might reduce a few points every time a lender or financial institution checks your credit score because they consider this as a marker of you trying to borrow more (points that increase when you start repayment). Checking your own score, on the other hand, does not affect it. Keeping an eye on your score can help you plan how to improve it, find out which loan/card is harming it the most, and also help you plan your future. Moreover, it is also a great way to ensure your credit history only includes legitimate loans initiated by you, and not any fraud using your identity to take out loans.</p>.<p class="CrossHead Rag"><strong>Elongate your good debt</strong></p>.<p>You might find yourself in a situation where you’re able to quickly pay off a loan in full or even make a big purchase without a loan. However, this does not help your credit score. Closing loans early — while perfectly legal and free as mandated by the RBI — can cause your credit score to reduce, since you minimise your credit portfolio. Unless you’re moving your loan to a more affordable interest rate, it is better to keep paying the loan in a timely fashion. </p>.<p><span class="italic">(<em>The writer is the chief executive officer and co-founder of Volopay</em>)</span></p>
