How To Build a Good Credit Score

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1. Build your Credit Score

2. Reduce your Current Borrowing / EMI Costs

Are you a newbie, just starting out in the financial world with a clean slate and no prior credit history?

Or are you trying to rebuild what is now a troubled credit history?

Building a positive credit history is a time-consuming process. There isn't any quick solution or an easy way out. It takes patience and dedication, and several factors determine your credit score outstanding balance. The age of your credit history, your payment history, credit utilization rate, etc. are all taken into account by credit bureaus while calculating your credit score.

Each of these factors works uniquely, and it might be somewhat tricky for an amateur to understand the dynamics of credit. Read this article to discover effective ways of building your credit score.

Factors Affecting Credit Score

Here is a list of the factors that affect your credit score:

Timely Payments

Always repay the owed amount on time. Try your best to pay the amount in full. Your creditor might ask you to repay a portion of the total owed amount within the due date, but you must know that an APR will be imposed on the remaining amount. Credit card interests are quite high, and if you keep your payments pending, you might end up paying a lot more than you had initially borrowed. Pay on time, and your credit score is bound to rise.

Outstanding Debts

If you have an outstanding balance, pay it off as soon as you can. Stalling will make it a considerable burden, as outstanding amounts attract a high APR. Settling these pending balances will ensure a slow but gradual increase in your credit score.

Age of Credit History

This is the record of how long you have been managing credit - the longer, the better. You will be considered more worthy of getting a loan if you can prove that you have been maintaining your credits responsibly for an extended period. Hence, avoid closing your oldest credit card account; doing so could drastically bring down your credit score.

Credit Mix

A variety of accounts is always preferable, as it shows that you have been trusted with credit by other lenders. It presents you as a responsible borrower who has been considered creditworthy. This in turn boosts your credit score.

How to Build a Good Credit Score

Credit Card Utilization

You shouldn't exceed 30% of your available credit limit. A low credit utilization rate indicates that you spend responsibly. It also suggests that you are more likely to repay the loan on time as you limit your expenses to your affordability. A low credit utilization rate assures a high credit score.

Building Credit

Now that you know about the various determinants of credit score, let me tell you how to improve it. You might be a beginner in need of credit score or an experienced spender with a messed up credit history. Don’t fret. Don’t get all worked up. There’s a solution to every problem; you can conquer your challenges with patience and a little help. Here you go:

Building Credit for the First Time

Let's start with the obvious: you must have at least one credit account if you are planning on building a credit history. If it is your first credit account, here are the options you've got:

  1. Secured credit card - it is a credit account whose credit limit is attached to your savings account. It serves as a security measure for the bank in case you are unable to repay the balance.

  2. Loan - You could take a small loan. If you aren’t eligible for it, get it cosigned by an acquaintance with a good credit score. However, the cosigner would be entering a serious obligation by doing so.

  3. Authorized user – If an acquaintance with a good credit history is willing to add you as an authorized user on their credit card, your credit score could largely benefit from him.

Once you establish a credit history for yourself, you would be eligible for starting your line of credit. Henceforth you need to be extremely careful so that you pay your dues on time always. If you have a credit card, you must keep your credit balance as low as possible, not exceeding 30% of the credit limit. Repay the balance in full every month. It is essential that you establish a pattern of responsible borrowing habits. 

It might take three to six months of activity to calculate a credit score. Make small purchases every month and repay it in full within the due date. Show responsible credit habits, and it will help you build a good credit score.

Rebuilding a Damaged Credit Score

Damaged credit history can be hard to repair; however, it isn't impossible. The time and ways of improving a troubled credit history largely depend upon the severity of your situation. One can recover from the damage of a couple of missed or late payments in a few months, but the crisis of a substantial debt might take years to emerge from. The steps mentioned below can help you deal with both:

  1. Clear all debts: The very first thing that you need to do for rebuilding a damaged credit is to clear all your debts. As long as you have debt, your credit cannot be repaired. Check out what debts you already have and pay those back as soon as possible within the stipulated time.

  2. Catch up on late payments: In case you have any late fees, pay them as soon as possible. Late payments are never good for your credit score.

  3. Pay on time: This one is significant. Lenders forward your money because they expect and trust you to pay them back on time. When you are unable to do that, it reflects poorly on your credit report. As a result, lenders in the future may not want to give you any loans. Thus, you need to pay interest on time.

  4. Reduce your expenses: keep a low credit balance - It is essential to reduce your expenses as much as possible until your debts are paid back. It makes no sense to buy expensive things when you have debts.

  5. Reduce your credit utilization rate: The credit utilization rate is equal to how much money you owe divided by your credit limit. The lesser money you owe, the better it will reflect on your credit report. In time, you shall be able to take care of your damaged credit.

Brace yourself - this might be a lengthy process, but it will work out for sure.

To Sum Up

Whether you are crawling out of debt or aiming for a fresh start in the world of finance, you must increase your credit score. Set your goals and follow through. Now that you know what you must do, you should set targets and work towards them.

It might take a lot of patience and hard work, but you should stay committed and focused. Your credit score will rise sooner or later.


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