As the availability of credit facilities such as loans and credit cards is increasing in India, the importance of credit scores cannot be ignored. Lenders heavily rely on credit scores to determine an individual's creditworthiness and make lending decisions. Experian, one of four major credit bureaus, provides individuals with their Experian credit scores, ranging between 300 and 850. A high Experian score indicates responsible credit behaviour and increases the chances of loan approvals.
At Shriram Finance, we understand the significance of a good credit score in accessing credit facilities like home loans, car loans, and personal loans. Your chances of availing these financial solutions at favourable terms and interest rates become better with a good Experian credit report.
Follow this comprehensive guide to learn how to increase your Experian credit score.
Factors that Affect Your Experian Credit Score
Credit scoring systems analyse your credit report to predict your credit behaviour. Certain factors hold weightage in calculating your Experian credit score before we provide step-by-step strategies to help you improve your Experian credit report.
Payment history
Payment history has the highest weightage in your credit score. It accounts for 35% of your credit score. So, a single payment default or late payment can negatively affect your credit score. Consistently making on-time payments for all your credit liabilities for 24 months, will reflect on your credit report and help improve your credit scores.
Credit utilisation
Credit utilisation refers to the proportion of the credit you currently use from the total credit available. It is always recommended to keep your credit usage within 30% of your available credit limits. For instance, if you have a credit limit of ₹1 lakh across all your credit cards and maintain an outstanding balance of ₹25,000 or less each month, it will help keep your credit utilisation ratio below 30% and boost your credit score.
Credit mix
Credit mix refers to different types of credit such as credit cards, loans, mortgages, and retail finance accounts in your credit portfolio. Credit mix forms 10% of your credit score. Having a diverse credit mix can positively impact your Experian credit score. Lenders prefer borrowers to have both instalment debt and revolving credit as a part of their credit mix.
Length of credit history
The length of your credit history also influences your Experian score. It accounts for 15% weightage in your credit score. A longer credit history demonstrates stability and experience in managing credit. For instance, if you have maintained multiple active credit accounts, such as loans and credit cards, for at least 5 years, it will boost your credit scores.
New Credit Applications
When you apply for new credit, it may lead to credit inquiries, which can temporarily impact your Experian credit score. Inquiries for instalment loans and credit cards are treated differently. Multiple inquiries for credit cards within a short period can be viewed as a sign of credit risk. For example, if you apply for several credit cards within a short timeframe, it shows too much dependence on credit and your inability to manage debt responsibly.
However, multiple inquiries for loans are considered positive credit behaviour and the same type of loan inquiries are clubbed together. New credit applications form 10% of your credit score.
Other factors
Some other factors also affect your credit score. These factors include your total credit limits, outstanding loan amounts, recent credit behaviour, public records like bankruptcies or court judgments, and any history of collections or settlements. While these factors only form 5% of your credit score, they still contribute to the overall assessment of your creditworthiness.
Steps to Improve Your Experian Credit Scores
The following 5 tips to improve your credit score can help you access credit facilities at favourable terms.
Build your credit file
Start building a positive credit history to improve your credit score. The first step towards building your credit profile is opening new accounts that will be reported to major credit bureaus. Open and active credit accounts in your credit profile demonstrate responsible borrowing behaviour.
Avoid Missing Payments
Timely payments help in improving your credit score. Delaying any loan or credit card payments can impact your score negatively. Set up reminders, and auto-payment of instalments can help prevent late payments. If you're facing financial difficulties, reach out to your credit card issuer or lender and explain your situation so that they can help you with a payment solution.
Resolve Due Accounts
Clearing outstanding debt allows you to allocate more money toward future goals. You can negotiate settlements or create repayment plans to clear outstanding debts. For example, if you have an overdue credit card balance, you can contact the issuer to discuss repayment options.
Pay Down Balances in Revolving Accounts
Revolving credit is the unpaid balance of the credit card bill carried over to the next month. A high revolving balance means higher interest rates, which increases your credit utilisation, thus negatively impacting your credit score. Maintaining a low balance within your credit limits positively affects your score and helps boost your Experian score.
Limit New Account Requests
Submitting multiple new account applications within a short timeframe negatively impacts your credit score. Each application leads to a hard inquiry on your credit report, resulting in a slight dip in scores. However, exploring certain types of loans within a specific period is considered non-risky behaviour by credit scoring models.
How Much Time Does It Take to Rebuild Experian Credit Score?
The time required for rebuilding credit scores varies depending on individual circumstances and the extent of negative marks on the report. If you have a single missed payment, you can rectify it by making on-time payments again. This can help improve your credit score relatively quickly. However, if you have multiple missed payments it may take longer to recover. Negative marks show on your credit reports for 7 years, and bankruptcies can last for up to 10 years.
How to Calculate Experian Credit Score?
Experian credit score is calculated based on 5 major factors with varying weightage.
- Payment history accounts for 35% of the final score and reflects your ability to make timely payments on credit accounts.
- Credit utilisation makes up to 30% of the score and considers the amount of money you owe, your account balances, and how much of your credit limit you use.
- The length of credit history contributes 15% to the overall score, taking into account the average age of your credit accounts.
- Credit mix carries a 10% weightage and refers to having a good combination of unsecured loans and secured loans.
- Lastly, new credit makes up another 10% and considers recent credit applications or the opening of new credit accounts.
Conclusion
Always check your credit score before you apply for any loans or credit to avoid rejections. Improving your Experian credit score is crucial for accessing favourable financial solutions like home loans, car loans, and personal loans. By understanding the factors that affect your Experian score and following the steps mentioned above, you can learn how to improve your Experian credit score and achieve a better credit rating.
Take action today and build a robust credit profile with Shriram Finance's offerings.
Key Highlights
- Build a positive payment history by making timely repayments on loans and credit cards.
- Maintain a low credit utilisation ratio by keeping outstanding balances low compared to available credit limits.
- Focus on resolving past-due debts to free up finances for future goals.
- Pay down revolving balances to improve your Experian score.
FAQs
1. How do I build my Experian score?
To build your Experian credit score,
- Open new accounts that will be reported to major credit bureaus.
- Have a diverse mix of credit types, such as loans and credit cards.
- Check your credit report regularly for errors.
2. How can I raise my Experian credit score in 30 days?
It may not be possible to improve your Experian credit score within just 30 days. However, there are ways in which you can improve your credit score, over time, such as making all your payments on time, paying down high balances on revolving accounts, and limiting new credit applications.
3. How to get a 720 Experian credit score in 6 months?
Focus on the key factors that influence your credit score – making timely payments, maintaining low credit utilisation, having a diverse credit mix, and limiting new account requests – can help you improve your score over time.
4. Is Experian 100% accurate?
While Experian strives to maintain accuracy in its reports and scoring models, no credit bureau can guarantee 100% accuracy. It is essential to regularly check your credit report from all major bureaus for any errors or discrepancies. If you find any inaccuracies, notify the respective bureau and provide supporting documentation to rectify them.
5. What is the highest Experian score possible?
The highest possible Experian credit score is 850.
6. What affects your Experian score?
Several factors impact your Experian credit score, including,
- Payment history
- Credit utilisation
- Length of credit history
- Credit mix
- New credit applications
7. Which credit report is most accurate?
All four major credit bureaus in India – Experian, CIBIL™, Equifax, and CRIF High Mark – are licensed by the Reserve Bank of India (RBI) and strive to provide accurate credit reports.
