Curious about your creditworthiness? Your CIBIL Score, a three-digit number, is the key. It's a reflection of your financial health and plays a pivotal role
Your CIBIL score is a crucial factor when it comes to availing credit from lending institutions such as banks, non-banking financial companies, and other financial institutions. It is a three-digit number that ranges from 300 to 900, which indicates your creditworthiness.
The higher your CIBIL score, the better your chances of getting approved for loans and credit cards. Lenders use your CIBIL score to evaluate your credit history and determine your ability to repay loans. Therefore, having a good CIBIL score is essential for anyone looking to secure credit easily and on favourable terms.
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Why Your Credit Score is Important?
Despite banks and lending agencies opening up in many cities and towns, acquiring money isn't always easy. Financial institutions assess an individual's ability to repay before providing loans due to the risk involved in lending. A credit score is a crucial factor considered by lenders, making it vital for individuals to maintain good credit scores.
Having a high credit score increases the chances of getting approved for a loan or credit, and it can also lead to lower interest rates. Therefore, it's crucial to pay attention to our credit score and ensure it's in good shape.
How to Increase CIBIL Score
Now that we know why credit score is important, let us take a look at what you can do to increase your CIBIL score.
1. Set Reminders for Payment
Failing to make timely repayments on your outstanding debt can have severe consequences, especially on your credit score. It's essential to be punctual in paying your EMIs to avoid any negative impact on your credit rating. Delayed EMIs not only result in penalties but also lead to a decrease in your credit score. If you struggle to remember payment due dates, setting reminders to pay on time is a helpful solution.
2. Limit Credit Utilisation
Limiting your credit utilisation to 30% of the total credit available to you is one other way to keep your score high. If you use more than that, it looks like you need credit frequently and have difficulty surviving on your income. To achieve this, a good way is to borrow a mix of credit, like secured and unsecured loans, credit cards, gold/home/vehicle/education loans etc., and, of course, to pay them back on time.
3. Check your CIBIL Report for Mistakes and Rectify Them
This is one thing people generally tend to forget, but even after you do everything right if your score doesn’t improve, it might be because of some discrepancies in your credit report. Sometimes, due to these discrepancies, your CIBIL score gets affected negatively, and you are left clueless about the reason. To avoid this from happening, keep a check on your credit report proactively and report any discrepancies you find.
4. Opt for a Longer Tenure When You Take a Loan
If you're considering taking out a loan, it's recommended that you opt for a longer repayment period. By doing so, your monthly instalment payments (EMI) will be lower, making it easier for you to keep up with them and avoid being listed as a defaulter. This approach can also help boost your credit score.
5. Avoid Taking Too Much Debt at One Time
It's advisable to keep the number of loans you take out in a specific time frame to a minimum. Instead, repay one loan before taking out another to avoid damaging your credit score. If you take out several loans at once, it can suggest that you're in a vicious cycle where you don't have sufficient funds, which can further decrease your credit score. On the other hand, if you take out a loan and repay it successfully, it can improve your credit score.
6. Maintain a Healthy Credit Mix
Having a balanced mix of secured loans, such as a home loan or auto loan, and unsecured loans, such as credit cards and personal loans, is recommended. Lenders tend to favour individuals who have a higher number of secured loans, and credit bureaus also assign good credit ratings to them. If you have more unsecured loans than secured loans, it's a good idea to prepay your unsecured loans to maintain a healthy loan mix.
7. Increase Your Credit Limits
If your bank offers to increase your credit card limit, don't decline it. This doesn't necessarily mean that you'll be spending more money every month; instead, you'll need to be wise about managing your expenses. The key is to have a higher credit limit and keep your credit utilisation low, which can have a positive impact on your credit score.
8. Watch Out for Joint Applicants
One way to maintain a healthy CIBIL score is to monitor loan applications made by the person who shares a bank account with you. This is important because if the joint account holder defaults on a loan application, it can affect your credit score even if you are not responsible for the loan. For example, if the joint account holder applies for a loan and fails to make payments, it can reflect negatively on your credit score as well. To avoid this situation, it's important to ensure that loans and credit cards are paid on time and to minimise the number of loans applied for through joint accounts.
Reasons for Low CIBIL Scores
Some common errors that borrowers make that can lead to a low CIBIL score include:
1. Outstanding Credit Card Balance: If a borrower has a high outstanding balance on their credit card, it can negatively impact their CIBIL score. This is because it indicates that the borrower may not be able to manage their credit responsibly.
2. Too Many Loans/Credit Cards:If a borrower has too many loans or credit cards, it can be difficult for them to keep track of their payments. This can lead to missed or late payments, which can lower their CIBIL score.
3. High Credit Usage:If a borrower is using a high percentage of their available credit, it can indicate that they are relying too much on credit. This can be a red flag for lenders, as it suggests that the borrower may be at risk of defaulting on their loans.
4. Delay in Repayments: If a borrower consistently makes late payments or misses payments altogether, it can significantly impact their CIBIL score. Lenders see this as a sign that the borrower may not be able to manage their finances effectively.
5. Missing EMIs/Due Dates: If a borrower misses their EMI payments or due dates, it can negatively impact their CIBIL score. This is because it indicates that the borrower may not be able to repay their loans on time.
6. An Unhealthy Mix of Secured and Unsecured Credit: If a borrower has a lot of unsecured credit (like credit cards) and not enough secured credit (like home loans), it can indicate that they are not managing their credit mix effectively. This can be a red flag for lenders, as it suggests that the borrower may be at risk of defaulting on their loans.
But if you need a loan urgently (or before you have a chance to improve your score), you can always opt for KreditBee. This online loan app is one of the best and quickest ways to get a personal loan.
Final Thoughts
Improving your CIBIL score is crucial for achieving financial stability and securing loans at favourable terms. By adopting the strategies discussed in this article, such as paying your bills on time, reducing your credit utilisation, and checking your credit report regularly, you can take control of your creditworthiness and pave the way for a brighter financial future. Remember, building a strong credit history takes time and effort, but the rewards are worth it. So, start taking steps today to boost your CIBIL score and unlock a world of financial opportunities.
AUTHOR
KreditBee As a market leader in the Fintech industry, we strive to bring you the best information to help you manage finances better. These blogs aim to make complicated monetary matters a whole lot simpler.
