How To Rebuild Your Credit Score?

A good credit score is crucial for accessing financial products like loans and credit cards on favourable terms. If your credit score has dipped, rebuilding it might seem challenging. However, it is achievable with the right strategies. Here's how you can improve your credit score over time.

Rebuilding your credit score starts with understanding the factors that influence it. Addressing these aspects will help improve your score gradually:

Payment History

Payment history has the most significant impact on your credit score. Late or missed payments can negatively affect it. Ensuring timely repayment of bills, loans, and credit card dues is crucial for rebuilding your credit.

Credit Utilisation Ratio

This refers to the proportion of credit used compared to your total credit limit. A high credit utilisation ratio signals over-dependence on credit, which can lower your score. Aim to keep this ratio below 30% to show responsible credit usage.

Length of Credit History

The age of your credit accounts plays a role in your score. Older accounts contribute positively as they demonstrate a long track record of credit management. Avoid closing old accounts, even if they're not in use, to maintain your credit history length.

Credit Mix

A diverse mix of credit, such as credit cards, personal loans, and mortgages, reflects positively on your score. It shows your ability to handle different types of credit responsibly.

New Credit Inquiries

Applying for multiple credit products within a short span can lead to numerous hard inquiries, which can lower your score. Limit new credit applications to only when necessary.

 

Correcting these areas and maintaining discipline in credit management will help you rebuild your credit score over time.

Here are some effective strategies to help improve your credit score:

Make Timely Payments

Ensure to pay your credit card bills and EMIs on or before the due date. Consider setting up reminders or automating payments to avoid any penalty and improve your payment history.

Reduce Outstanding Debt

Work towards paying off your existing debts strategically. Prioritise high-interest debts first to reduce your financial burden and gradually improve your credit score.

Monitor Your Credit Report Regularly

Check your credit report for inaccuracies in data or potential fraudulent activities. Raise a complaint in case of any errors with the credit bureau to ensure your credit history is accurately reflected.

Maintain a Low Credit Utilisation Ratio

Keep your credit card usage below 30% of the available limit. This indicates responsible credit management and positively impacts your score.

Limit New Credit Applications

Avoid applying for multiple credit products in a short period. Each application triggers a hard inquiry, which can temporarily lower your score.

Diversify Your Credit Portfolio

Having a mix of secured and unsecured loans demonstrates your ability to manage different types of credit, which can improve your score over time.

Avoid Closing Old Credit Accounts

Retain old credit cards with a good repayment history. These accounts help establish a longer credit history, which contributes positively to your score.

Use Secured Credit Cards

If your credit score is low, consider using a secured credit card. Timely repayments on this card can help rebuild your score effectively.

 

Implementing these measures consistently can lead to steady improvements in your credit score.