Credit Score: Why It Matters And How You Can Build It – A Guideline

Your credit score is simple three-digit number that carries serious weight. It reflects on your credit consumption habits and plays a key role in future borrowings. So much so, that your credit score is  often one of the first things lenders check when you apply for a credit card, a car loan, or a home loan. Let’s dive into what affects your credit score, and how you can build and maintain it.

Why your credit score matters? 

Your credit score reflects your borrowing behaviour and lenders use it to assess how safe it is to lend to you. Credit scores fall in the range of 300 and 900, with scores above 750 considered healthy. A high score of 800 or above shows you’re a low-risk borrower, which can translate to quicker approvals and better loan terms. For example, if your credit score is 780, you might be offered a personal loan at 10.5 per cent. But if your friend has a score of 650, the interest rate could shoot up to 14 per cent, or the application might even be declined.

Who checks your credit score? 

Your credit score may be reviewed by banks, NBFCs, credit card issuers, digital lenders, landlords, and even potential employers. Every time you apply for credit, the lender conducts a “hard enquiry” into your report. Multiple such enquiries can drag your score down. Which is why it’s wise to space out credit applications and avoid unnecessary borrowing.

Also read : Tax Alert! Officials Extend July 31 Deadline For Filing ITRs For FY25, Check The Due Date HERE

Maintaining your credit score

Pay on time, every time

Your repayment history accounts for about 35 per cent of your credit score. Even one missed EMI or credit card bill can damage it. Set up auto-debit mandates or calendar reminders to stay punctual. While paying the minimum keeps the account active, it’s always better to pay the full amount. Discipline and consistency are key to a strong credit record.

Keep your credit usage low

Aim to keep your credit usage below 30 per cent of your overall limit. Crossing this threshold can signal risk, even if you pay in full. If your spending is high, consider requesting a limit increase or getting a second card to spread your usage. For instance, if your credit card limit is Rs 1 lakh, try to keep monthly spending under Rs 30,000. 

Keep old accounts open

Your oldest credit lines reflect your borrowing history and boost your creditworthiness. Closing these shortens your credit age, which may lower your score. Say you close a card you’ve held for seven years, and your next oldest account is just two years old — your credit history suddenly shrinks. Even if you rarely use the old card, make a small transaction every few months to keep it active. A mix of old and new accounts strengthens your creditworthiness.

A high credit score opens doors to better interest rates, smoother approvals, and financial confidence. It takes time to build but only a moment to damage. Stay disciplined, borrow wisely, and check your credit report regularly to stay on track.