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A good credit score could increase your chances of getting a home loan, a personal loan or a credit card. It could also help you get a lower interest rate.
Your credit score shows lenders how likely you are to pay back money. The Credit Information Bureau (India) Ltd (CIBIL) generates this score for you. It ranges from 300 to 900; a score of 700 to 900 is considered a good credit score.
Here are some ways you can boost your score for a better borrowing outcome.
Lenders want to know they can rely on you to make regular repayments and manage your existing debt. Paying bills late or not at all will likely negatively impact your credit score.
They'll be most interested in your payment history of the last 12 months. If you've missed payments in the past, but have since become more reliable, your credit score might not be affected as much as you think.
A simple way to avoid missing payment deadlines is to set up online mandates for scheduled recurring payments.
It can take about 6 to 12 months of repayments to start building your credit history.
Your credit report outlines how much you owe, whether you've missed any payments, and if you've gone over your credit limit. Without this history, it's difficult for a lender to determine how creditworthy you are.
For example, you could buy a mobile phone or other household items and paying for them in instalments is one way.
It can be easier to meet the credit card eligibility requirements with a credit card that has a low limit. While these cards might come with higher interest rates, if used responsibly and paid off in time you can build credit without extra charges.
Your debt-to-credit ratio – also known as the credit utilisation ratio – is the amount of money borrowed in relation to your credit card limit. You want to keep this at about 30% if you can. If you spend near, or over, your credit limit every month it might appear that you're having trouble managing your finances.
If you're always borrowing more than 30% of your credit limit every month, try to raise the limit. This may seem counterintuitive, but getting an increase proves to the credit bureaus that the lender trusts you with larger amounts of their money.
You can also try making two card payments in a month to keep your outstanding balance down, or create an alert that will tell you when you're about to reach your ratio.
Too many card or loan applications within a short time may give lenders the impression that you're struggling for money. These applications, known as hard inquiries, can negatively impact your credit score (even if you don't borrow money!). Be careful about giving companies consent to pull your report.
If you just want to compare rates, ask for a 'quotation search' instead of a 'credit application search'. This means it won't show up on your credit profile. Compare the offers first and check you meet the credit card eligibility requirements before applying.
Thinking of applying for another card? Read about the Pros and cons of having multiple credit cards.
Mistakes can happen, and these could be costly. Make sure there are no transaction errors and that any amounts showing as owed on your accounts are correct.
In India, there are 4 main credit bureaus – all licensed by the Reserve Bank of India (RBI) – that will calculate your credit report. These include:
If you think there's been a mistake, you can get a copy of your credit report and file a dispute with the credit bureau. CIBIL estimates it can take up to 30 days or more to resolve a dispute.
Plan to clear your credit card balances by the due date. Not paying on time can hurt your CIBIL Score. Regular defaults can easily take your credit score below 600. If you miss the due date, this will be reflected in your credit report under the Days Past Due (DPD) section in your CIBIL report.
If you cannot make the complete payment by the due date, try to at least clear the minimum amount due. This way, the card provider won't report the non-payment of total dues to the bureau. Even though you’ll pay interest on the remaining unpaid amount, you’ll have another billing cycle to clear your dues and protect your credit score.
Read more: What is minimum due on a credit card?
Any outstanding debt is noted on your CIBIL report and will lower your score until you repay it. So, it's essential that you clear outstanding debts to boost your score. To do this, repay your debt within your chosen timeline or make prepayments to foreclose your loan. Using credit responsibly will improve your score.
RBI regulations state that a credit score update must take place every 15 days. This means that any of your financial activities like making payments on time or defaults will show on your credit score within this time. A regular credit score update helps keep your credit information fresh.
The timeline for rebuilding credit depends on how much damage was done to your credit score and the steps you’ve taken to fix it.
Negative items can remain on your credit reports for 7 to 10 years. It will take longer to recover from more serious credit events, such as bankruptcy, debt settlement, foreclosure and loan default[@article-equifax-source].
However, by following the 7 steps to improve your credit score, you may start seeing a big improvement within a few years.
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Moving countries? You may have to start from scratch. At HSBC, we can facilitate the transfer of your HSBC Premier credit history from India to help you access similar levels of credit in another eligible overseas country or region. Credit history will be transferred upon request from the overseas HSBC Group and will be subject to local regulations.
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