Credit Score Maintenance: Best Practices for a Healthy Financial Profile

If you want to get approved for a loan in India, you must have a credit score of 750 or above. However, if your credit score check does not deliver a result above 750, do not worry. Here are a few things that loan applicants can do to maintain a CIBIL score above 750.

Simple Tips on How to Build and Maintain a Strong Credit Score 

1. Your repayment history is responsible for about 35% of your credit score. To maintain a strong CIBIL score, you must maintain a clean repayment history. The easiest way to do this is to never miss an EMI payment or a credit card due date. Individuals who avail themselves of a loan must always set aside an emergency fund so that if they are ever in a situation where paying their EMI becomes difficult, they can dip into this emergency fund and cover their EMIs. People with weak memories who miss EMI due dates and pay credit card bills as they can't remember dates must set up reminders or authorize their banks to make payments on their behalf. These are some simple things borrowers can do to make sure they have a clean repayment history.

2. It is also important to maintain a low credit utilization ratio. A high credit utilization ratio indicates an excessive dependency on credit. Individuals who use their credit cards recklessly and never clear the entire amount due have a high credit utilization ratio. To build and maintain a good CIBIL score, credit users must use their credit cards cautiously. They must never exhaust the entire limit on it until and unless they plan to clean the entire amount due before the next due date. To maintain a good CIBIL score, maintain your credit utilization ratio under 30%.

3. Individuals who have a healthy mix of both secured and unsecured loans have a better credit score than individuals who have only one type of loan as it indicates the credit user's ability to handle all types of debt. If you want to maintain a good CIBIL score, make sure you have both secured and unsecured loans. Home loans and loans against property are loans backed by collateral and are called secured loans. Loans, such as a personal loan or a car loan, do not involve any security and are examples of unsecured loans. Lenders charge a higher rate of interest on unsecured loans and thus, most people avoid them. However, one must establish their ability to handle both secured and unsecured loans if one wants to build an excellent credit score.

4. Lastly, an individual must never have too many hard enquiries under their name. Hard enquiries are enquiries made by lenders regarding credit users. Too many hard enquiries establish a loan borrower to be excessively dependent on credit or credit-hungry. Thus, credit users must make sure they do not have too many hard enquiries under their name. Maintaining a sufficient gap between one's loan and credit card applications is one of the easiest ways to do so.

5. Lastly, credit users must never close old loan accounts and credit cards. The longer one's credit history, the better their credit score. Closing old loan accounts deletes one's credit history, thereby negatively impacting their credit score. 

These are some of the simple things credit users can do to maintain a good CIBIL score and increase their chances of loan approval.