I'd just say You need to capitalize the pronoun 'I'. 'Better' sounds like it is optional.
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sb70012which one is grammatically ok:Both are grammatically OK, but in the general case of making a suggestion in a polite way, use "would", and then the past tense in the if-clause, though the mixed conditional with the present simple tense is also possible.
sb70012If I use [would], then I should say [capitalized] or [capitalize]?I believe I have already written that both are possible, but if you want a recommendation, then I'd say "capitalized" is the word to use.