How to Improve Credit Score in India (Step-by-Step Guide)

Anyone looking to borrow money or obtain a credit card should understand how to improve credit score to enhance their financial situation. If you're new to borrowing, or if you have previously made mistakes with your credit report, understanding how to improve your credit score in India will make it easy for you to establish stable finances over time, as well as secure the lowest interest rates possible moving forward in your financial life.

The parent guide provides a clear and straightforward look at the fundamentals of Credit Scores (CCS) and how they are determined by all of India’s major credit bureaus. Using simple and accessible terminology, this step-by-step guide explains the process of creating a good credit score over time through sound practices and behaviours. The guide seeks to educate rather than promote any particular company or product and applies equally to all four major credit bureaus in India.

What Is a Credit Score?

An individual’s credit score is a 3-digit numeric representation of his/her creditworthiness, which shows lenders how responsibly that individual has managed his/her loans and credit cards over time. To find out how to improve your credit score, you need to first understand what these metrics mean in terms of your financial situation.

Licensed credit bureaus in India compile your credit report to produce your Credit Score (CIBIL). The following information is included in your credit report:

• Payment history for loans
• Credit card usage
• Total outstanding debt
• Number of open accounts

Lenders utilize this score to determine whether they will approve your application. The lender uses this score as part of their overall assessment of your creditworthiness and whether or not you meet that lender's criteria for a loan or a credit product. The lender can evaluate your credit score and see what level of risk they are willing to take in lending to you, which is what impacts the interest rate and repayment terms the lender is likely to offer. Lenders will use your credit history score to determine how much credit they are willing to extend to you, be it in the form of a credit limit, loan amount, or otherwise.

Credit Score Range in India (Across Bureaus)

There are various credit bureaus in India, which are important to know when learning how to improve credit score in India, such as Equifax, CIBIL, and Experian, all of which provide an individual's credit rating. How each of these bureaus calculates an individual's credit rating varies somewhat, but most have similar ranges when it comes to credit scores.

Major Credit Bureaus in India

• CIBIL (Trans Union CIBIL), the highest well-known & used Credit Bureau in India, collects & maintains both Individuals' and Businesses' Credit Information as well as Credit Scores, which are used by Banks & Financial Institutions.
• Experian, A Global Credit Reporting Agency, has an office in India. Collects and analyses financial information, prepares Credit Reports & Scores for usage by lenders in evaluating the Credit Behaviour and History of borrowers.
• Equifax is a global credit bureau that provides consumers and lenders with adequate Consumer Credit Reporting Information and Analysis to enable lenders to assess the Credit Risk of consumers to make informed lending decisions.
• CRIF High Mark collects and provides consumer credit information for retail consumers and micro-lending borrowers while aiding responsible lending by ensuring lenders have the necessary information for decision-making making

Common Credit Score Range

A score above 750 is generally considered strong by most lenders across bureaus.

Factors That Affect Your Credit Score

Before you can start working on how to increase credit score, you must officially know and understand the major factors that determine your credit score. The major factors that determine an individual's credit score may differ slightly from one credit bureau to the next. However, the common elements and factors affecting a person's credit score are consistent for all credit bureaus. Therefore, they are also used by all individuals in developing a positive credit profile. Understanding these same types of components is essential for making educated decisions regarding your financial activities and taking necessary actions to establish a solid credit history.

Payment History

Late payments, missed payments, loan defaults and settlements impact your credit score by sending a message to creditors about how you have repaid your debts in the past. All of these items show a pattern of poor repayment that will seem risky to future lenders.

Credit Utilisation

The percentage of your available credit that you currently use is referred to as your credit utilisation. When the amount you've spent on credit is high compared to the amount of available credit you've got, it may indicate that you're under financial stress and rely too much on credit.

Recommendation: To build a healthy credit rating, we recommend keeping your total credit utilisation between 29.9% and 30%, or less.

Credit Age

Lenders use a longer credit history to determine how well you will pay back loans and how reliable you are as a borrower. This means, if you close your old accounts, your average number of years will decrease, and this will likely have a negative effect on your profile. For those learning how to improve credit score in India, understanding this point of having older accounts is very helpful for developing a strong credit history.

Credit Mix

Keeping both secured credit (e.g., home loans, auto loans) and unsecured credit (e.g., credit cards, personal loans) together to maintain a healthy mix helps demonstrate that you manage different types of debt effectively. Your healthy mix of types of credit will reflect positively on your financial conduct, which will ultimately enhance your overall Credit Score substantially.

Hard Enquiries

When you apply for new credit, your credit report is subject to a hard inquiry. A high number of hard inquiries in a short period may indicate to lenders that you are at risk.  As a result, your credit score may be negatively impacted.

Best Ways to Improve Credit Score (Long-Term)

If your goal is to how to improve credit score in India, focus on sustainable habits rather than shortcuts.

On-Time Repayments

Payment of EMIs or credit cards should be completed before or by the due date. If a payment is delayed (even one time), it will negatively impact your credit score and decrease how lenders evaluate you as a potential borrower.

Credit Utilisation Below 30%

By keeping your credit utilisation percentage low, you show that you are financially responsible and that you borrow with discipline. In addition, having a lower credit utilisation percentage shows lenders that they perceive less risk when approving you for a loan or line of credit, which will ultimately lead to improvements in your credit score over time.

Credit Mix Balance

Instead of utilizing just one type of credit exclusively, try to use a blend of both Secured and Unsecured Credit, as this creates a stronger and healthier credit history/account. In addition, it will have a positive effect on your score.

Avoid Frequent Loan Applications

Applying for credit over an extended period allows you to avoid having multiple hard inquiries on your credit report in a short period. Having fewer hard inquiries indicates a lower risk to lenders and preserves and provides for a healthier credit rating.

How Long Does It Take to Improve Credit Score?

A frequently asked question about how to improve credit score in India is the timing. Credit improvement will not happen quickly; therefore, establishing Realistic Expectations is essential.

• Minor improvements (3–6 months)
• Moderate recovery (6–12 months)
• Major rebuilding (12–24 months)

Ultimately, the Consistency of Payments and Controlled Credit Utilization will provide a gradual reflection of your credit history to the Three Credit Bureaus over time.

Credit Score vs CIBIL Score

Credit scores and CIBIL scores are often confused. However, credit scores are general terms used to refer to scores that have been created by a variety of different agencies; while the CIBIL score is a specific type of score created by TransUnion CIBIL, one of the three main credit bureaus. Each lender can choose which agency or agencies it wants to use in evaluating your credit report; thus, there is no industry standard as to how many credit agencies (if any) will be checked before making a loan or extending credit. This is important for understanding how to improve credit score.

Final Thoughts: Building a Strong Credit Foundation

Understanding how to improve credit score isn't something you can accomplish overnight; it requires responsibility, education, and time. If you know how to improve credit score via regular repayments and wise credit choices, then you will be able to take advantage of all the ways you will prosper financially in the future.

In addition, by knowing how to improve credit score in India from all three credit bureaus, Indian consumers can obtain more financing options with the same amount of credit (i.e. no limit). Thus, by implementing the above steps for improving credit score in India, you may very well be able to have a loan approved on the same day that you apply.

Also Read:
- Top Benefits of Having a Good Credit Score
- Unknown Facts About Credit Score Everyone Should Know!