A credit score is your financial report card. It’s like your entry card into the world of financial instruments such as loans and credit cards. 

This implies that you need to maintain a good credit score to be easily eligible for loans. Now, debt is not entirely a bad thing. The problem occurs when you utilize it wrongly or follow bad credit practices. 

Certain loans such as an education loan or a home loan can be beneficial due to having low interest rates, good tenures, and tax benefits. 

A CIBIL credit score above 750 is considered excellent. You have a high chance of getting really good interest rates and will be eligible for good credit cards as well. So, how can you reach this stage? Read on to find out.

How to build a great credit score?

1) Timely Repayment

Always pay your bill on time. Always, I repeat, always. Your repayment history has a weightage of 35%, which is the highest. Repaying your bill late will reflect negatively on your credit report. Secondly, always pay your bill in full. Avoid making the minimum due payments. Doing this will trap you in revolving debt. 

Also Read: A secret hack for students to build Credit Score from scratch

2) Credit Utilization Ratio

Your credit utilization ratio refers to how much credit you are using out of your total credit limit. For Example: Let’s say your credit limit is Rs 1,00,000. You used Rs 25,000 and the bill was generated. In this case, your credit utilization ratio is 25%. 

As a rule of thumb, it’s advisable to keep your utilization ratio within 30%. This is because lenders will then find you a responsible credit user, and it will reflect positively on your credit report. 

3) Length of Credit History

This is an important criterion and has a weightage of 15% on your credit report. A person with a longer history of credit has a higher chance of obtaining good loans or cards because the lender has proof of them handling debt for many years. 

A few factors looked into while checking your credit history are:

• Age of your oldest loan account
• The average age of all your debt accounts
• Age of any new debt account

Pro Tip: Don’t close credit cards that are not used too frequently. If you have an old card, keep it active because closing it will impact your credit history length, reducing your credit score. 

4) Avoid Multiple Enquiries

When you apply for a loan or a card, lenders will check your credit history. This is called a hard inquiry. Too many hard inquiries will negatively affect your credit score. This is because lenders may view you as a greedy borrower. They will feel you are trying to borrow too much, and this can be a risky sign to them. 

Also Read: Credit card billing cycle rule changed by RBI. Know how it helps cardholders

5) Credit Mix

It is advisable to have a good mix of credit. What does this mean? Loans can be of 2 types, secured and unsecured. For Example: Loans for Homes, Vehicles, etc are usually secured, meaning that there is an underlying asset. The lender can seize and sell the property or vehicle in case you default on your loan. 

But, credit cards and personal loans can be unsecured. Meaning, there’s no underlying asset. Hence, this is why lenders prefer you to have a mix of unsecured and secured loans. If your credit report reflects this, you will tend to have a higher credit score. 

If you only have unsecured loans, lenders may term you as risky. 

Here’s a table reflecting factors affecting your credit score and their respective weightages.

These can be considered the golden rules for you to achieve a CIBIL score of 750+. Make sure to follow them like the gospel. And remember, handling credit comes with a lot of responsibility. Being irresponsible will lead you to end up in financial turmoil.