Build a Positive Credit Score with Good Credit Habits

Your financial habits will majorly impact your financial standing which is why maintaining healthy habits comes to the picture. This is true especially when it comes to your credit profile, as it can help you build a positive credit score. However, building a favourable credit profile is much more than spending and borrowing and doesn’t happen overnight. 

While it is possible to get a loan without a credit score, you must consistently practice good credit habits. Clearing your credit card bills and paying your loan EMIs on time helps building a positive CIBIL or credit score. Uncertain about how to improve credit score?

Here are top 5 credit habits to consider for improving your credit score:

Prioritise your financial commitments

Planning financial goals and weighing all credit options is essential to build a positive credit score. Most lenders evaluate your repayment capacity from your debt-to-income ratio. This ratio determines your monthly liabilities compared to the total income you earn. Simply put, it is the percentage of your entire income from which you have to pay your rent, credit card bills and loan EMIs. 

So, you must plan and prioritise your financial goals. If you are wondering how to increase your credit score, try keeping your debt obligations much lower than your income. Calculate your income to EMI ratio before borrowing and keep the ratio under 30%. Strategic financial planning like this is crucial to building a positive credit history.

Managing credit limits

Wondering how to increase CIBIL score? The answer is simple. Apply for credit only when you need it and have the repayment capacity. Be careful of how regularly you apply for credit cards. Applying for new credit too often will lower your score. In any case, a credit card with a considerable credit limit is excellent and you must maintain a low credit utilisation ratio. Utilising a large portion of the assigned credit not only adds to your responsibilities but may also affect your repayment capacity. 

If you are new to credit, your credit utilisation ratio is the percentage of credit you have utilised against the total available credit limit. For example, if you have a total credit limit of ₹5 Lacs and make purchases worth ₹75,000, your current credit utilisation ratio is 15%. In this case, it is a healthy ratio as it is recommended that you utilise only up to 30% of your total credit limit.

Always keep track of your credit transactions, especially your credit card activity. Alternatively, you can also opt for automatic payments to avoid delayed payments. Inform your lender about starting this service and have the money debited from your account on a set date every month. It will ensure timely payments that can help build a positive credit score. 

Simply put, anything indicating the non-performance of your credit accounts harms your credit score. So, if you are stressed thinking about how to improve CIBIL score, all you need to do is keep tabs on your credit card utilisation. If its low, it is easily manageable, as opposed to a higher outstanding, which may be a lot more challenging to repay.

Budget your spends

Budgeting monthly and annual expenses help you eliminate cash crunch situations. This will also help you stay on top of payments and show lenders that you are a responsible borrower.

Payment history is one of the most influential factors in CIBIL score improvement. The cardinal rule to follow is to try and put aside a sizable sum of money in a separate account as an emergency fund. This will help avoid defaults, repossessions, foreclosures, and third-party collections. 

This fund can also help you meet your credit obligations and unexpected expenses during a financial crisis. With proper budgeting, achieving a positive credit score is relatively easy.

Maintaining older accounts

The simplest way to learn how to increase CIBIL score is to understand the role of your credit accounts. Your accounts reflect usage, repayment patterns, and key markers of financial management, and help establish a history with credit. Naturally, it is better that you maintain your older credit accounts, as these showcase a longer history with credit. This is good for your CIBIL score. 

Similarly, maintaining an account for extended periods is a good credit habit, as your credit score also depends on the credit utilisation ratio. Hence, closing credit accounts may often lower your available credit and harm your credit profile. Instead, consider keeping accounts open if they have a good payment history and a low or zero balance.

Healthy credit mix

Maintaining a balanced credit mix of secured and unsecured loans is vital. A quick unsecured loan can help you bridge short-term credit needs, so try and balance by taking secured loans like car loans or home loans to balance the portfolio and build a positive credit score. 

However, avoid availing too much credit, as these instruments can increase your debt burden. Apply for different types of loans depending on your requirements and develop a good credit score. There’s no need to stress about how to increase CIBIL score, as with this option, you can gradually improve your credit profile.

Monitor your credit score

It is vital to keep a tab on your score with constant monitoring. Checking your credit report not only helps you assess the score but also helps detect any errors in the credit report. So, regular monitoring is an effective way to boost the credit score and understand your borrowing and repaying habits.

Bottomline

Once you avail a loan or get a credit card, your credit history forms. This history is critical in boosting your credit or CIBIL score. The CIBIL score is a 3-digit number that determines your credit profile. It ranges from 300-900. It also reflects your credit behaviour and borrowing habits across a timeline. It is important for you to showcase good credit habits as lenders evaluate credit profile, repayment habits and behaviour patterns. 

The best way to develop good long-term credit habits is through financial discipline. It is important to boost your credit score as this can provide you with umpteen benefits in other aspects of life too. Check out our beginner’s guide to borrowing and credit if you’re looking to get started.

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