How Credit Utilisation Affects Your Credit Score?

A high credit score shows an individual is a reliable borrower. It indicates that the individual has good financial habits, and lending to such a person poses low risk to lenders. Also, an individual with a good CIBIL score will get loan approval more quickly at a lower interest rate. In this guide, you'll learn how to increase your credit score through various strategies.

What Impacts Your Credit Score?

It is essential to understand the factors that affect the credit score before trying to improve it. Here are the five important factors that impact the credit score:

• Repayment history

• Credit utilisation

• Credit history

• Credit mix

• Credit Enquiries

According to TransUnion CIBIL, payment history accounts for 40% of an individual's credit score.

CIBIL Score Check

Without reviewing your credit report, it is not possible to improve your credit score. As a first step, check your free credit report with an authorised credit bureau. Specifically, check whether there are any:

• Missed or delayed payments

• Incorrect loan balances

• Duplicate accounts

• Closed loans still showing as active

• Any unknown credit enquiries

Correcting these errors can instantly improve the credit score. If you come across any error, raise a dispute with the bureau and the lender immediately. Resolving the issue usually takes about 30 to 45 days.

How to Increase CIBIL Score Quickly?

Now that you understand what affects your credit score, let’s look at practical ways to increase your CIBIL score quickly.

Pay all Loans or Credit Card Bills on Time

The most important factor affecting the credit score is the timely repayment of borrowed funds. Even a single missed payment can significantly reduce your score. You can avoid this mistake by setting up auto-debit mandates for:

• Loan EMIs

• Credit card minimum dues

If your cash flow is strained, try to at least pay the minimum dues, as this helps prevent negative reporting. Late payments can remain on your credit report for years; therefore, making prompt payments helps rebuild creditworthiness faster.

Reduce Credit Utilisation Ratio

The credit utilisation ratio refers to the amount of credit you use compared to your total available credit limit. A credit utilization ratio above 30% indicates financial stress, as it suggests difficulty in managing credit efficiently and can significantly lower your credit score.

The following steps can help you reduce utilisation:

• Pay the outstanding balances immediately

• Split the expenses across multiple credit cards

• Request an increase in credit limit

• Avoid spending immediately after repayment

A reduced utilisation ratio indicates improved financial control, leading to an increase in the credit score within one or two billing cycles.

Don't Apply for a New Credit Temporarily

When you apply for a new Personal Loan or credit card, it triggers a hard inquiry on your credit report. Multiple hard enquiries within a short period may indicate a higher need for funds or poor credit management. This can negatively impact your credit score. Hence, temporarily pause applying for:

• Credit cards

• Personal Loans

• Buy-now-pay-later schemes

Even a shorter enquiry-free period can stabilise the CIBIL score. Hence, apply only when it is necessary to borrow funds. This will reflect positively on the credit report, increasing the lender's confidence.

Do Not Close Old Credit Accounts- Maintain Payment History

Older repayment records are powerful contributors to your credit score. When you close an old account, the associated data is eventually removed from your credit history. This also includes loans that were borrowed and repaid on time. This results in a missed opportunity to strengthen your credit score.

Maintaining older accounts helps increase your credit age, while closing them reduces the average length of your credit history. Even an unused credit card should be kept active if it does not carry an annual fee. Using it occasionally and repaying the full amount helps maintain account activity without any added risk. A longer credit history contributes to greater credit score stability.

Diversify Your Credit Mix

A balanced mix of secured and unsecured credit amounts improves your profile. Some examples are Personal Loan, credit card, home loan, or Gold Loan.

However, one must not apply for unsecured loans or secured credit card approval solely to improve the credit mix. Apply for funds only when necessary, and this strategy works better over time. Even when not borrowing new funds, responsible management of existing credit helps to maintain a healthy credit profile.

Maintain a Positive CIBIL Score Report

An unpaid account can severely damage your credit score. Clearing overdues and resolving written-off loans can help improve your CIBIL credit report. It is always preferable to mark an account as “closed” rather than “settled,” as closed status indicates full repayment. Therefore, negotiate for full closure whenever possible.

• Always check for the following after settlement:

• Request a No Dues Certificate from a lender

• Confirm that the account status is correctly updated in your credit report

• Monitor your credit report periodically to track changes

Once negative entries are corrected or updated, your overall credit health can gradually improve.

Keep Your Credit Behaviour Consistent

Credit scores do not improve overnight. To see meaningful improvements, it is important to maintain consistent credit behaviour for at least two or three billing cycles.

Focus on the following during this period:

• Zero late payments

• A low credit utilisation ratio

• No new hard enquiries

Consistency matters more than short-term intensity. With disciplined credit behaviour, most individuals begin to notice improvements in their credit score within 60 to 90 days.

Use Credit Amount Responsibly Before Applying for a New One

Ensure that you optimally utilise the borrowed funds before applying for a new loan. It stabilises the score, which improves loan approval chances and interest rates. With an improved credit profile, you can consider structured borrowing options, such as personal loans. A loan must reduce the financial burden, not increase it. Hence, use funds efficiently and apply only when necessary.

Also Read: Essential Credit Score Monitoring Tips for Better Financial Health

To Conclude

Improving the credit score quickly requires focused action and consistent discipline. Timely repayments and a lower credit utilisation ratio will deliver faster results. Periodically reviewing credit information and correcting errors helps avoid unnecessary damage to financial health. A strong credit score improves loan eligibility and lender confidence.

After calculating your credit score, obtain the required funds from a trusted financial institution. Poonawalla Fincorp offers flexibility, transparency, quick approval, and a great loan experience. Apply for a Personal Loan today!

FAQs

Will checking my own credit score reduce it?

No. Checking one's own CIBIL score is considered a soft enquiry. They don't cause any negative impact on the CIBIL report.

Can a settled loan ever be fully removed from the credit report?

No. It remains on the credit report; however, its impact on the score reduces over time with disciplined payment behaviour.

Does a personal income impact credit score?

No. Timely payment of the borrowed amount directly reflects the credit score. Income level does not influence the CIBIL score.

Can a rejected loan application affect my credit score?

No. A rejected loan application does not directly affect your credit score. However, the hard inquiry generated during the application may have a minor impact.

Does having no credit history affect your credit score?

No. The credit bureaus cannot have any data to check the credit health. Hence, a low or no credit score reduces the loan approval chances and lender confidence.