Why isn’t your credit score improving despite clearing dues on time?

A frequent credit card user must know that a good credit score is a key factor in determining your creditworthiness. Therefore, keeping track of it is essential to maintain a good score.

A credit score is a three-digit number that expresses how well you've managed credit over time. It is an important factor that shows your financial health.

A lower credit score can make it difficult to get loans, credit cards, or favourable loan terms, and it can also make borrowing expensive, whereas having a good credit score makes it easier to get loans.

It is mainly determined by paying your dues on time. Most people think making timely payments will ensure a good credit score. However, paying your credit card dues on time does not guarantee a good credit score. 

Check out a few factors that influence your credit score.

1. Credit utilization ratio

Credit card utilisation, or credit utilisation ratio has an impact on your credit score. It is the percentage of your total credit limit that is currently being used. This ratio is determined by dividing total outstanding credit card balances with total credit limit.

A low credit utilisation score indicates poor credit usage habits and a high credit utilisation score signals high debt, which may reduce the chances of getting a loan at a desired interest rate.

2. Credit report

A credit report reflects your credit history, including details such as credit accounts, payment history, and public records. Monitor your credit report to check if it is missing any transaction or payment details. However, checking your credit report often does not guarantee a good credit score.

3. Credit mix

Ensure a good credit mix. It can help you maintain a good credit score. It shows your ability to handle various types of debts. A mix of instalment loans and revolving accounts shows you can handle debt responsibly. It eventually shows your financial management skills and reflects you are a reliable borrower. Having a limited credit mix questions your ability to manage different types of debt. This may make it difficult to get good terms on future debt.

4. Multiple requests

If you apply for a new credit card or a loan in a short span of time, a credit bureau may reduce some points from your credit score. When a lender inquires about your credit score, it is referred to as a hard enquiry. This enquiry results in a temporary drop in your credit score by a few points.

Applying for multiple credit cards or loans may lead to a significant drop in your credit score. Before applying for multiple credit cards, research properly and apply for those that match your eligibility and requirements. This way, you can avoid multiple requests.

How to improve your credit score?

• Try to keep your credit utilisation score low.
• Pay all your dues early or on time to ensure a good credit score.
• Have a good blend of credit to show your ability to handle various types of debt.
• Check your credit report and report errors, if any.
• Avoid making multiple credit card applications in a short duration.

In conclusion, as a credit card user, it is important to know various factors that impact credit scores. Try not to rely only on paying bills on time to ensure a good credit score. Always incorporate other factors, such as a good credit mix, good credit utilisation ratio, and an error-free credit report, to have a good credit score.