If you want to take out a loan or apply for a credit card, having a good credit score is very important. A good credit score also ensures that you get a low interest rate when taking out a loan. But what can you do if your credit score is not good?
Now you must know that a credit score usually ranges between 300 and 900. In this article, we are going to learn in detail about how to increase your credit score. I myself did some things to improve my credit score, and they were very beneficial for me. So, let’s understand in simple terms what a credit score depends on and how to increase it!
But before that, let’s know how people try to increase their credit score illegally.
How do people try to increase their credit score illegally?
Credit score is an important part of your financial credibility, and having a good one is very important to get a loan or credit card. But some people resort to illegal ways to increase their score in a short time. I have heard a lot about this myself, and today I will tell you how people try to increase their credit score illegally, and how to avoid it. Let’s look at each point!
- Ways to increase credit score illegally
Changing credit records through hacking
Some people pay hackers to break into the systems of credit bureaus (like CIBIL, Experian) and try to delete their bad credit records or increase their scores. For example, they delete their missed payments or default records. But this is completely illegal, and you could face legal action.
- Misuse of CPN (Credit Privacy Number)
Some people use CPN numbers to create new credit profiles. CPNs are originally used by government officials or celebrities to hide their private information, but some fraudulent credit repair companies misuse them to ask you to create new identities. This is illegal, and you could be charged with fraud.
- Misuse of Piggybacking
Piggybacking is the act of adding yourself as an Authorized User on someone else’s good credit account. Some people pay money to add themselves to strangers’ accounts, which in turn boosts their score. This is legal to some extent, but if you misuse it (e.g. by giving a false identity), credit card companies can close your account, and your score can be damaged.
- Fixing credit report errors with false information
Some people try to fix real negative information on their credit report (like missed payments) by falsely filing a dispute on all the negative items, even if they are true. This is not technically illegal, but if the credit bureau finds out that you filed a false dispute, your dispute could be denied, wasting your time and money.
- Creating a false identity
Some people create a new credit profile using a false identity (like a fake name, address, or Aadhaar card), which hides their previous bad credit score. But this is completely illegal, and it can leave you facing identity theft and fraud charges.
How to avoid illegal ways?
I myself have resorted to legal ways to improve my credit score, and it has helped me a lot. You too can avoid these illegal ways and improve your score legally:
- Take legal ways
Choose legal ways to improve your score. For example, pay your bills on time, keep your credit utilization ratio below 30%, and take out a secured loan and repay it on time. I started paying my credit card bill every 15 days, and my score increased by 50 points in 6 months. - Beware of fraudulent companies
Some credit repair companies ask you for money for things like CPN or piggybacking. Beware of such companies. I almost paid such a company once, but my friend stopped me. Always check the credibility of the company, and get information from the bank or the official website.
What is a credit score and why is it important?
A credit score is a number that shows your financial reliability. This score is determined by credit bureaus like CIBIL, Equifax or Experian. If your score is above 750, it is considered good. If you have a good score, the bank gives you a loan or credit card easily, and at a low interest rate. But if the score is low (e.g. 500-600), it is difficult to get a loan, and the interest rate is also high. That is why improving your credit score is very important.
Factors that affect credit score
Before understanding how to improve your credit score, you need to know what it depends on. I myself found out why my score is low, and I got information about these things:
Payment History:
This is the most important factor, which determines 35% of your score. It is seen whether you pay your credit card bills, loan installments and other loan amounts on time. If you miss a payment even once, it has a bad effect on your score.
Credit Utilization Ratio:
This is the ratio of your total spending on your credit card and your credit limit. For example, If your credit limit is 1 lakh and you spend 50,000, your ratio is 50%. It is better for this ratio to be less than 30%. This factor determines 30% of your score.
Credit History Length:
It looks at the average age of your credit accounts. It is good to have old credit accounts (e.g. 5-10 years), as it shows your financial stability. This factor determines 15% of the score.
Credit Mix:
It looks at whether you have a mix of credit cards, loans (home loan, personal loan) and other accounts. The ability to handle different types of credit is considered good. This determines 10% of the score.
New Credit Inquiries:
When you apply for a new credit card or loan, a ‘hard inquiry’ is done. If many such inquiries are made in a short period of time, it has a bad effect on the score. This 10% determines the score.
How to increase credit score? – Step by step
Now you must be wondering whether it is possible to increase credit score? Yes, it is definitely possible! I myself increased my score from 600 to 780, and for this I did some simple things. Let’s see them:
- Step 1: Pay bills on time
Pay all your bills – credit cards, loan installments, electricity bill – on time. I set payment reminders on my phone, and set automatic payments for some bills. Due to this, I never missed a payment, and my score gradually increased. - Step 2: Take a secured loan
If your score is low, take a secured loan (like a gold loan or loan against FD). In this, you pledge your property (like gold), and get a loan. I once took a loan on FD, and paid it off on time, which improved my score. - Step 3: Limit credit applications
Don’t apply for multiple credit cards or loans in a short period of time. I once applied for 3 credit cards, and my score dropped by 20 points. So apply only when necessary. - Step 4: Keep your credit utilization ratio low
Keep your credit utilization ratio below 30%. For example, if my credit limit is 2 lakhs, I don’t spend more than 60,000. I started paying my bills every 15 days, which kept my ratio low. - Step 5: Don’t close old credit accounts
Don’t close your old credit cards or accounts, as this reduces the length of your credit history. I still don’t use my first credit card, but I haven’t closed it. - Step 6: Check your credit score regularly
Check your credit score every 3-4 months. You can check your score for free on the CIBIL website or on your bank app. If I see something wrong with my score (like a bad loan), I report it to CIBIL and get it corrected.
Some important tips to improve credit score
- Take a small loan: If your score is low, take a small personal loan and repay it on time. This will improve your payment history.
- Maintain a credit mix: Don’t rely solely on credit cards. I took a small personal loan and a home loan, which improved my credit mix.
- Become a co-borrower: If your score is low, become a co-borrower with your spouse or parents. This will help you get a loan and improve your score.
- Give time to improve your credit score: It can take 6-12 months for your score to improve. I only gained 30 points in the first 3 months, but I kept going and gained 180 points in 1 year.
Things that i always keep in mind
A good credit score is the foundation of your financial life. After improving my score, I got a home loan at 8% interest rate, which was 10% earlier. You too can follow these top tips
You can increase your score by following. But be consistent and disciplined, because credit scores don’t increase overnight. So what are you waiting for? Start today and improve your score! If you have any more questions, be sure to ask me. I’ll explain it to you in simple terms!
FAQ for Improve Credit Score:
1. What is a good credit score in India?
A credit score above 750 (out of 900) is considered good in India, making it easier to get loans or credit cards at lower interest rates.
2. How can I improve my credit score quickly?
Pay bills on time, keep credit utilisation below 30%, avoid multiple credit applications, and consider secured loans to build a positive payment history.
3. What factors affect my credit score?
Payment history (35%), credit utilisation ratio (30%), credit history length (15%), credit mix (10%), and new credit inquiries (10%) impact your credit score.
4. How long does it take to improve a credit score?
Improving a credit score can take 6-12 months, depending on consistent payments, low credit usage, and correcting errors in your credit report.
5. Why is a low credit utilisation ratio important?
A low credit utilisation ratio (below 30%) shows you’re not over-relying on credit, which improves your creditworthiness and boosts your credit score.