Credit Cards: What steps can I take to improve my credit score?

If you are planning to apply for a credit card, remember that you need to first build a credit score. And if your credit score is low, you need to take some substantive steps to improve your score. It is vital to mention that the credit score is not permanent and one can always improve it through proper planning and action.

Here we list out some key steps that one can take to improve the credit score. Some of them are small steps such as checking your credit report regularly, paying your bills on time and maintaining an appropriate credit mix.

Others include some concrete steps such as reducing credit card debt, using old accounts open and using secured credit cards so as to gradually build the score over time.

Steps to take to improve your credit score:

1. Check credit report regularly: First you need to procure your credit report from credit bureaus such as CIBIL, or Equifax. You are entitled to one free credit report every year from each bureau.

2. Pay your bills on time: Payment history is a major factor in determining your credit score. Consistently paying bills such as credit card dues, loans, and even utility bills on time will positively affect your score.

3. Reduce credit card debt: One should aim to keep your credit utilisation ratio below 30 per cent. High utilisation can adversely impact your score. If your credit limit is ₹5 lakh, try to keep the balance under ₹1.5 lakh.

4. Multiple loans in a short time: Every time you apply for a loan or credit card, there is a hard inquiry on your credit report that can temporarily lower your score. So, you should refrain from applying for multiple loans or credit cards in a short period.

5. Appropriate credit mix: Having a mix of credit types such as credit cards, personal loans, and home loans—can positively impact your score, provided you manage them well.

6. Use secured credit cards: If you have a low or no credit score, a secured credit card backed by a fixed deposit can help you build credit.

7. Long-term credit habits: Building a good credit score takes time. Practise responsible financial behaviour over months and years to see gradual improvements in your score.

8. Clear old debts: If you have unpaid loans or credit card dues, consider negotiating a settlement with your lender. After settling, ask them to update your account as “closed” or “settled” in your credit report.