How to protect your credit score? 4 experts answer

Financial discipline is crucial for credit score protection.

In the hurly burly of daily life, we sometimes tend to overlook the essentials; like maintaining your credit score. A decision that may come back to haunt us in the future.

Maintaining a good credit score is crucial because it affects loan approvals, and interest rates.

“Customers can protect their credit scores by paying EMI on time, monitoring credit reports for errors, keeping credit card balances low, avoid opening multiple accounts at once, using different types of credit, closing unused accounts, being cautious with credit inquiries, setting up payment reminders, addressing debt issues, and protecting personal information from identity theft and fraud, advices Vaibhav Shah, Joint Head, Credit, Capri Global.

Credit score ranges between 300 to 900, and a higher score, typically above 750, indicates lower credit risk of an individual, thereby increasing the chances of loan approval at favorable terms. A lower score suggests higher risk, leading to potential rejections or higher interest rates. Banks and NBFCs rely on scores from credit bureaus like CIBIL, Experian, and Equifax to make informed lending decisions.

“Don’t miss any payments, set up payment alerts if needed,” says Padkil, SVP & Head - Direct to consumer business at TransUnion CIBIL Limited. Missing even one payment can impact your credit score. Set up payment reminders for all your bills and credit cards. This ensures you never miss a due date, as timely payments are crucial for maintaining a healthy credit score.

Manage your credit utilization. Keep your balances low by using only some of your available credit limit. This demonstrates prudent credit management and positively impacts your CIBIL score.

Keep a balanced credit mix. Aim for a healthy mix of secured loans (like home loans and auto loans) and unsecured loans (like personal loans and credit cards). “This balanced approach can benefit your credit profile,” says Padkil.

Apply for credit wisely. Only apply for credit when needed and conduct thorough research to find the best options. This approach helps maintain a healthy credit profile

Monitor co-signed, guaranteed, and joint accounts. Keep an eye on these accounts monthly, as you are equally responsible for missed payments. Ensuring all parties involved manage the accounts responsibly protects your credit standing.

Review your credit history regularly. Frequently monitoring your CIBIL score and report helps in identifying inaccuracies (if any), which can be promptly addressed through a dispute on the CIBIL website or by contacting your lender

“Your Balance build-up behavior is important,” says Sanjeet Dawar, Managing Director, CRIF High Mark. Care needs to be taken in the pace at which you are borrowing. Frequent borrowings will build your credit balances rapidly and can indicate a risk of leverage.

Conversely, consistent or rapid reduction in balances indicates a reduction in the borrower’s indebtedness. It is advisable to pre-pay or foreclose your loans as and when you can.

Experts say that if you have built a clean credit history over a long period, it serves as a testimony of your credit discipline and ability to repay. Credit scores gain more confidence when there is a longer history available to assess the borrower. It is therefore imperative to consciously establish a long credit history.

A spurt of inquiries in a short span of time may be related to credit hunger or financial distress. “It is important to plan and select a suitable lending institution for your needs and avoid multiple applications with different lenders for the same requirement,” says Dawar.

“Prudently managing our financial obligations can help mitigate any possible negative impact on the credit score,” advises Ashish Tiwari, Chief Marketing Officer, Home Credit India. Thus, make minimum payments on credit cards and loans that provide the facility and use the remaining funds to pay off loan EMIs. This helps avoid late fees and minimizes damage to your credit score.

When facing financial hardships, it's crucial to explore programs offered by banks and lenders, including loan moratoriums, reduced minimum payments, or debt restructuring through converting large payments or credit card bills into easy EMIs, etc. “Acting quickly and being proactive is key; contact your bank or lender when you foresee a payment delay and inquire about available assistance programs,” says Tiwari.

As you navigate through financial challenges and work towards protecting your credit score, regular monitoring is essential. This allows you to track any improvements resulting from your actions, such as paying down debt or disputing negative information. It also helps you identify any sudden drops in your credit score, allowing you to take timely action to address any issues.

Manik Kumar Malakar is a personal finance writer.