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A good credit score could increase your chances of getting a home loan, a personal loan or a credit card, as well as secure a lower interest rate.
The Credit Information Bureau (India) Ltd (CIBIL) will generate your credit score to determine your creditworthiness. This score ranges from 300 to 900; a score of 700 to 900 is considered a good credit score.
Here, we outline some of the ways in which 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. Tardy or delinquent payments are likely to 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.
Set up online mandates for scheduled recurring payments and you'll never miss a deadline again.
It can take about 6 to 12 months of repayments to start building credit.
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 of borrowing and repaying, it's difficult for a lender to determine how creditworthy you are.
Taking on a small amount of debt can help you borrow larger amounts in the future – as long as you manage it well. Buying 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 if it 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 incurring any extra charges.
Your debt-to-credit ratio – also known as the credit utilization 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. Spending near, or over, your credit limit every month may 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 one 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 and lenders may be under the impression that you're struggling for money. These 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 your lender to do 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.
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 – 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. CIBL estimates it can take up to 30 days or more to resolve a dispute.
Strategically plan to clear your credit card balances by the due date. Your CIBIL Score is hit significantly in case of non-payment of dues. 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, you should at least try to clear the minimum amount due. This way, the card provider will does not report the non-payment of total dues to the bureau. Even though the remaining unpaid amount will start incurring interest for the billing cycle, you'll get an additional cycle to clear off your dues and prevent your credit score from falling.
Having outstanding debt is noted on your CIBIL report. Until you repay it, debt will negatively impact your CIBIL credit score too. 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.
The timeline for rebuilding credit will vary depending on the extent of the damage your credit score has sustained and the steps you take to rebuild.
Negative items can remain on your credit reports for seven 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 our steps to improve your credit, you may start seeing significant improvement within a few years.
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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