Best Ways to Rebuild the Credit Score

Posted on Monday, September 23rd, 2024 | By IndusInd Bank

A large part of your financial health depends on your credit score. For this reason, a low credit score can be a source of immense stress. A poor credit score can limit your financial options. It can happen because of missed payments, high debt, or even a lack of credit history.

A low credit score can lead to struggles in loan approvals, securing good interest rates, or even renting a house. However, even if you have a bad credit score, you can rebuild it. While rebuilding your credit score can feel daunting, understanding the best ways to rebuild your credit score can set you on the right path.

Understanding the Importance of a Good Credit Score

Before knowing how to rebuild your credit score, it’s essential to understand why it matters. In India, your credit score is a critical factor in your future. It determines your eligibility for loans, credit cards, and even certain types of insurance. A score above 750 is considered good. A score below this threshold requires action towards rebuilding credit.

Let’s look at how to rebuild your credit score.

1.     Start with a Secured Credit Card

One of the most effective ways to rebuild your credit score is by applying for a secured credit card. A fixed deposit backs secured credit cards. This reduces the risk for the bank. Also, it becomes easier for individuals with low credit scores to get approved for credit.

If you’re looking to rebuild credit, consider applying for a secured credit card. It can serve as a stepping stone towards a better credit future.

2.     Keep Your Credit Utilisation Low

Credit utilisation is the percentage of your credit limit that you are using. It plays a significant role in your credit score. A high credit utilisation ratio implies a high reliance on credit, thus negatively impacting the credit score. Ideally, your credit utilisation ratio should be below 30%.

For example, if your credit card has a limit of ₹1,00,000, try to keep your outstanding balance below ₹30,000. Maintain low balances and make timely payments. This way, you can improve your credit score without having to apply for multiple credit products.

3.     Set Up Payment Reminders and Automate Payments

Missed or late payments can severely damage your credit score. To avoid this, set up payment reminders or automate your payments. Most banks and financial apps offer features that allow you to schedule payments in advance. This ensures that you never miss a due date.

Whether it’s your credit card bill, loan EMIs, or utility bills, make all payments on time. This will have a positive impact on your credit report.

4.     Diversify Your Credit Mix

One of the best ways to rebuild your credit score is to have a diverse mix of credit types. This can include credit cards, personal loans, and auto loans. However, it is important not to overextend yourself. Managing different debts can prove your ability to handle various financial obligations.

For instance, if you only have a credit card, to improve your credit score, you can take out a small personal loan. Making regular payments on both can help rebuild your credit score. However, only take on new credit if you’re confident you can manage the payments. Missed payments will further harm your credit score.

5.     Avoid Closing Old Credit Accounts

It might seem counterintuitive but closing old credit accounts can hurt your credit score. The length of your credit history is a factor in your credit score. Hence, keeping older accounts open can be beneficial, even if you don’t use them often.

6.     Regularly Monitor Your Credit Report

In India, you’re entitled to one free credit report per year from each of the major credit bureaus. These bureaus are CIBIL, Experian, Equifax, and CRIF High Mark. Regularly reviewing your credit report is essential. It ensures that all the information is accurate and up to date. Mistakes in your credit report can unfairly lower your score. If you spot any errors, report them to the credit bureau immediately to have them corrected.

Also Read: The Role of Credit Cards in Personal Finance

Conclusion

Rebuilding your credit score can seem like a dream before you start. However, with the right strategies, it is possible. You can apply for a credit card or keep your credit utilisation low. Each of the options given above can bring you closer to a healthy credit score. The key is consistency and patience. Credit scores don’t improve overnight. But with time and responsible credit behaviour, you’ll see progress.

Explore IndusInd Bank’s credit card options today. Apply now and take the first step towards a brighter financial future.

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.