How Millennials Can Improve Their Credit Scores

Millennials are part of a generation that has been driving the booming retail credit market in India. According to a TransUnion CIBIL survey, millennials are the fastest-growing segment in the credit market, driven by aspirations for lifestyle upgrade, purchase of vehicles, and overall financial security. As a millennial, even if you are new to credit, it is possible to take control of your financial future with the right knowledge and strategies. Read this blog to understand the key factors affecting your credit score and how responsible financial behavior can help improve it.

What is a Credit Score?

Your credit score is a three-digit number that represents your creditworthiness. It typically ranges from 300 to 900 and is calculated based on your credit history. A higher credit score indicates lower risk of lending, making it easier to obtain credit with favorable terms.
In India, three main credit bureaus compile and maintain credit information: TransUnion CIBIL, Equifax, and Experian. Lenders report your financial behavior such as repayments and outstanding balances to these credit bureaus based on which, your credit score is generated.

Factors That Impact Your Credit Score

Your credit score is influenced by five main factors with each having a defined weightage. These are as follows:

Payment History – Making timely repayments is the first step to building and maintaining a good credit score. Late or missed payments negatively affect your credit score to a significant extent as payment history holds the greatest weightage.
Credit Utilisation – This is the amount of credit you have used in contrast to your total available credit. For example, if you have a credit limit of ₹1,00,000 and use ₹50,000, your credit utilisation is 50%. High credit utilisation affects your credit score negatively. 
Length of Credit History – The length or age of your credit history have a direct impact on your credit health. A long history of well-managed credit increases your credit worthiness and helps improve your credit score. 
Types of Credit Accounts – Although having a lesser weightage than other factors, a diverse mix of credit products including loans and credit cards has a positive impact on your credit score.
Recent Credit Inquiries – Applying for new credit frequently within a short period of time also has a marginal impact on your credit health. It is recommended to refrain from making too many credit applications at once to maintain a good credit score. 

Tips to Improve Your Credit Score as a Millennial

Millennials have their unique financial challenges. As such, building an impeccable credit history is imperative to access credit at favorable terms. Here are a few simple, yet effective tips to follow:

1. Check Your Credit Report Regularly

Monitoring your credit report regularly is the first step to improving your credit score. It shows all your credit accounts, enquiries, payment history and so much more. Keeping an eye on your report also helps detect any fraud accounts in your name and prevent identity thefts. 
Since bureaus update your credit report every 30 – 45 days, it is best to check your credit report once every month. You can easily check your updated credit score free of cost on the Poonawalla Fincorp website.

2. Don’t Miss Repayment Dates

As stated before, timely payments have the most significant impact on your credit health. To improve your credit score, start with clearing any overdue and making it a habit to pay your EMIs/credit card bills on or before the due date. 
One of the easiest ways to do this is to set up automatic payments. Most lenders will do this for you at the time of sanctioning the credit product. However, you can also use third-party apps to help set automatic payments from your bank account.

3. Reduce Credit Utilisation

Since high credit utilisation has a negative impact on credit scores, reducing your overall credit card balances is always the best practice to improve your score. Budget your spending wisely and ensure that you repay the total outstanding balance and not just the minimum balance. 
In case you already have significant accumulated credit card debt, start with clearing the accounts with the smallest balances first. Also known as the debt snowball method, this strategy is effective in paying off multiple loans and/or credit card balances. 

4. Avoid Opening Too Many New Accounts

If you keep applying for new credit products frequently within a short period of time, it can hurt your credit score in the long run. Always make sure that you meet the basic credit score requirements before applying for a loan or credit card. 
If you are already struggling to repay existing debt, it may be wiser to refrain from applying for a new loan or credit card for some time and focus on repaying existing debts first. 

5. Keep Old Accounts Open

Since the age of your credit history influences your credit score, it is highly recommended to maintain your oldest credit accounts (such as your very first credit card) even if you don’t use it frequently. This helps build a longer credit history and consequently improves your credit score. 

To Conclude

Millennials have played a huge role in the success of the retail credit market in India. Due to their unique financial challenges, getting access to diverse credit products is imperative. This is why a good score is indispensable for millennials like you. As a millennial, making timely payments to your loan accounts hold the utmost importance to ensure a good score. However, it is also important that you regularly monitor your credit health, reduce credit utilisation and keep new enquiries to a minimum in order to build an impeccable credit profile. 

Frequently Asked Questions

How do I improve my credit score?

You can improve your credit score by making timely payments, reducing credit utilisation, maintaining a long and diverse mix of credit accounts. In addition, monitor your credit report regularly to ensure that there are no errors. 

What is the best way to improve credit age?

The only way to improve credit age is to keep your oldest credit accounts open. Irrespective of whether you use your oldest credit account frequently, closing old accounts can reduce the overall age of credit history. 

What are the five factors that impact credit scores?

The five key factors that impact credit score are payment history (timely repayments), outstanding amount (credit utilisation), length of credit history, mix of credit products and application for new credit. 

Does checking my credit score decrease it?

No checking your credit score does not have any negative impact on your credit report. You can check your latest credit score (CIBIL/Experian) free of cost on the Poonawalla Fincorp website.