Banks and lenders usually check your credit score before approving a loan or credit card. A good credit score can make borrowing easier, while a low score may reduce your chances of getting a loan or lead to less favourable terms.
Your credit score can be affected by several things, including late EMI payments, unpaid credit card bills, high credit card usage and frequent loan applications.
The good news is that following a few simple financial habits can help you build a stronger credit profile over time.
1. Pay EMIs and Credit Card Bills on Time
Paying your EMIs and credit card bills on time is one of the most important habits for maintaining a healthy credit score.
Late or missed payments can appear in your credit history and may negatively affect your score. You can set up automatic payments or payment reminders to avoid missing due dates.
2. Avoid Using Too Much of Your Credit Limit
A high credit card limit does not mean you should use all of it.
Credit utilization refers to how much of your available credit limit you are currently using.
According to CIBIL, high credit utilization may indicate to lenders that you depend heavily on borrowed money, which can weaken your credit profile.
Keeping your credit card spending under control can help maintain a healthier credit utilization ratio.
3. Apply for New Loans Only When Needed
Cashback, discounts and joining offers can make new credit cards attractive, but applying for too many cards or loans within a short period may affect your credit score.
Every time you apply for a loan or credit card, the lender may check your credit report. This is known as a hard inquiry.
One or two inquiries may have a limited impact, but several applications within a short period can negatively affect your credit profile.
4. Think Before Closing an Old Credit Card
An old credit card with a long history of timely repayments can be useful for your credit profile. It shows lenders that you have managed credit responsibly over a longer period.
Closing an old card can also reduce your total available credit limit, which may increase your credit utilization ratio.
However, if an old card comes with high or unnecessary annual fees, you can consider whether keeping it open still makes financial sense.
5. Check Your Credit Report Regularly
Checking your CIBIL report regularly can help you identify errors before they become a bigger problem.
Your credit report contains details about loans, credit cards, outstanding balances, repayment history and lender inquiries. Look for unknown accounts, incorrect balances, duplicate entries or inquiries you did not authorize.
If you find incorrect information, you can raise a dispute to get it reviewed.
What Are Hard and Soft Inquiries?
A hard inquiry generally happens when you apply for a new loan or credit card and the lender checks your credit report. Multiple hard inquiries within a short period can affect your credit score.
A soft inquiry happens when you check your own credit report or when certain checks are made for purposes such as pre-approved offers. Soft inquiries do not affect your credit score.
Good Credit Habits Matter More Than Shortcuts
Improving your credit score usually takes time and consistent financial discipline. There is no instant trick that can guarantee a higher score.
Pay your bills on time, avoid excessive credit usage, apply for new loans only when necessary, manage older accounts carefully and review your credit report regularly.
Following these habits consistently can help you build a stronger credit profile over time.
