17 July 2024 | By INDIE
Building and maintaining a strong credit score is crucial for gaining approval for loans, credit cards, mortgages, and other financial products. This article explains how opening new credit accounts responsibly can help improve your credit score over time by increasing the total available credit and showing lenders you can manage different types of loans properly.
Opening new credit accounts responsibly can help improve your credit score over time. When you opt for a new credit card or loan, you increase your total available credit. This lowers your credit utilisation ratio – the amount of credit you're using compared to your total credit limit. Keeping your credit utilisation low is good for your score. Experts recommend keeping it below 30%.
New credit accounts also increase the mix of accounts in your credit history. Lenders like to see you can manage different types of credit, like instalment loans and revolving loans like a line of credit. Having 3-4 open accounts on your report with a good payment history shows lenders you can handle various types of credit responsibly.
INDIE by IndusInd Bank allows customers to conveniently access credit through My Credit Line. With this instant credit Line from INDIE, users can borrow any amount of money multiple times as needed directly into their INDIE account up to the approved credit limit. Using the product judiciously may help with your credit score.
A common misconception is that credit utilization ratio—the amount of credit you are using versus your total available credit—is the sole factor impacting your credit score. However, timely payments, keeping account balances low, and responsibly handling increasing credit limits over time also significantly influence your score.
Making at least the minimum payment every month is crucial, but paying your balances in full demonstrates responsible credit management. Set up autopay if possible to avoid missed payments. Delinquent accounts severely damage your credit score. Even if you can't pay in full, paying more than the minimum shows lenders you are committed to reducing debt.
Only take on new credit lines if you are confident you can continue to make timely repayments and keep account balances low. When you first open new credit, your score may dip temporarily from the hard inquiry and lower average account age. However, responsibly managing the new account over time demonstrates your ability to handle increasing amounts of credit. This can actually strengthen your credit profile in the long run.
● Make all payments on time. Pay all credit card bills, loans, and other debts by the due date every month. Payment history makes up the largest portion of your credit score.
● Lengthen your credit history. Sign up for credit cards or instalment loans and continue paying on time over many years to demonstrate longevity managing credit responsibly.
● Check your credit reports regularly. Errors can hurt your score – check annually and dispute any inaccuracies. Regular monitoring helps catch issues early.
● Limit applications for new credit. Each application does a "hard pull" on your reports that can temporarily lower scores. Space out new credit needs over time to minimise these pulls.
● Maintain a good credit mix. Having different types of credit like credit cards, instant credit lines, auto loans, student loans, etc., tends to strengthen scores more than relying solely on one type.
Opening new credit accounts responsibly can help improve your credit score over time by increasing total available credit and showing lenders you can manage different types of loans properly, but you must make on-time payments and keep credit utilisation low to avoid negative impacts. Managing bank credit line carefully along with other positive credit habits like monitoring reports and lengthening history can optimise your score.
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
