How Fast Can Your Credit Score Go Up?
Building and maintaining a good credit score is a crucial aspect of financial health. Understanding how and when your credit score can improve is vital for managing your finances effectively.
Credit scores, such as those maintained by the Credit Information Bureau Limited (CIBIL), are updated periodically based on the information provided by lenders. Once you make a complete payment, it may take up to 90 days for your score to reflect that positive change. This process varies depending on the bank and CIBIL's internal procedures.
The Timeline for Score Increase
A full payment made to a bank does not immediately result in an almost instant credit score increase. Banks typically take between 1 to 3 months to inform CIBIL that you have made the payment. CIBIL then updates your credit report to reflect the payment and closure of the account. After receiving this update, it may take another 1 to 2 months for the credit score to reflect the positive change. During this period, your credit report is updated, and the credit score calculation is re-evaluated.
Settlements and Their Impact
It's important to note that settling your debts with a bank does not necessarily increase your credit score. In fact, settling debts can hurt your score. Credit history is a significant factor in calculating credit scores. If you settle a debt, the payment status is marked as 'Settled' or 'Paid as Settled,' and this information can negatively impact your credit score. On the other hand, paying your debts in full and on time helps to maintain a clean payment history and can significantly improve your credit score over time.
Additionally, making late payments can have a detrimental effect on your credit score. Consistently paying your bills on time is one of the best ways to maintain a strong credit score. Each late payment can cause a drop in your score and may remain on your credit report for up to 7 years. Therefore, punctuality in payments is critical for long-term financial health.
Improving Your Credit Score Through Responsible Usage
If you want to improve your credit score, make informed financial decisions. One effective method is to get a loan through your credit card and split it into Equated Monthly Installments (EMIs). By making timely payments on these installments, you demonstrate responsible financial behavior, which can positively influence your credit score. Regular and timely payments show lenders that you manage credit responsibly, providing a favorable impression and a higher credit score during the annual credit score update.
In summary, while it is important to make timely payments to see credit score improvements, settling your debts may not have the desired effect and can even harm your credit score. Utilizing responsible financial practices such as splitting a loan into EMIs and consistently paying your bills on time can help you achieve a faster and more secure improvement in your credit score. For optimal results, monitor your credit report and ensure that any inaccuracies are reported to the credit bureau at the earliest possible time.