Your CIBIL score is a crucial factor when it comes to availing credit from lending institutions such as banks, non-bank financial firms and other financial institutions. It’s a three-digit number between 300 and 900 that indicates your credit score.
The higher your CIBIL score, the better your chances of getting approved for loans and credit cards. Lenders use your CIBIL score to assess your credit history and determine your ability to repay loans. A good CIBIL score is therefore essential for anyone who wants to secure a loan easily and on favorable terms.
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Why your credit score matters
Despite the opening of banks and loan brokers in many towns and cities, it is not always easy to get money. Because of the risk involved in lending, financial institutions assess a person’s ability to repay before lending. A credit score is a crucial factor considered by lenders, which is why it is vital for individuals to maintain good credit scores.
A good credit score increases the likelihood that a loan or credit will be approved and can also result in lower interest rates. Therefore, it is important to pay attention to our credit history and make sure it is in good shape.
How to increase the CIBIL score
Now that we know why creditworthiness matters, let’s look at what you can do to improve your CIBIL score.
1. Set payment reminders
Failure to pay off your outstanding debt on time can have serious repercussions, especially on your credit score. It’s important to pay your EMIs on time to avoid negatively impacting your credit score. Late EMIs not only result in penalties, but also worsen your credit score. If you’re having trouble remembering due dates, a helpful solution is to set up reminders to pay on time.
2. Limit credit utilization
Limiting your credit utilization to 30% of the total credit available to you is another way to keep your score high. If you’re consuming more than that, it looks like you need frequent credit and are struggling to survive on your income. To achieve this, a good way is to borrow a mixture of loans such as secured and unsecured loans, credit cards, gold/home/vehicle/education loans, etc. and of course pay them back on time.
3. Check your CIBIL report for errors and fix them
This is one thing that people generally forget, but even if you did everything right, if your score doesn’t improve, it could be because of some discrepancies on your credit report. Sometimes your CIBIL score is negatively impacted because of these discrepancies, and you don’t know why. To avoid this, proactively review your credit report and report any discrepancies you find.
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4. Opt for a longer term when you take out a loan
If you are considering taking out a loan, it is advisable to opt for a longer repayment period. This will lower your monthly installment payments (EMI), making it easier for you to keep up with them and avoid being listed as delinquent. This approach can also help improve your credit score.
5. Avoid taking on too much debt at once
It is wise to keep the number of loans you take out to a minimum in any given period of time. Instead, you should pay off a loan before taking out another one to avoid jeopardizing your creditworthiness. Taking out multiple loans at once may indicate that you are in a vicious cycle of running out of funds, which can further lower your credit score. On the other hand, if you take out a loan and successfully repay it, it can improve your credit score.
6. Maintain a healthy credit mix
It’s recommended to have a balanced mix of secured loans, such as a home loan or car loan, and unsecured loans, such as credit cards and personal loans. Lenders tend to favor people with a higher number of secured loans, and credit bureaus also assign them good credit ratings. 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 refuse. That doesn’t necessarily mean you spend more money every month; Instead, you need to be smart about managing your spending. The key is to have a higher credit limit and keep your credit utilization low, which can have a positive impact on your credit score.
8th. 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, even if you are not responsible for the loan, it can affect your credit score. For example, if the joint account holder applies for a loan and fails to make payments, this can also negatively impact your credit score. To avoid this situation, it is important that loans and credit cards are paid on time and the number of loans applied for through joint accounts is minimized.
Reasons for low CIBIL scores
Some common mistakes made by borrowers that can lead to a low CIBIL score are:
1. Outstanding credit card balance: If a borrower has a large outstanding balance on their credit card, it can negatively impact their CIBIL score. This is because the borrower may not be able to handle their loan responsibly.
2. Too many loans/credit cards: When a borrower has too many loans or credit cards, it can be difficult for them to keep track of their payments. This can result in missed or late payments, which can lower your CIBIL score.
3. High Credit Usage: If a borrower is using a high percentage of their available credit, it may indicate that they are over-reliant on credit. This can be a red flag for lenders as it indicates that the borrower is 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 affect 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 its EMI payments or due dates, it can negatively impact its CIBIL score. This is because the borrower may not be able to repay their loans on time.
6. An unhealthy mix of secured and unsecured loans: If a borrower has a lot of unsecured loans (like credit cards) and not enough secured loans (like home loans), it may indicate that they’re not managing their loan mix effectively. This can be a red flag for lenders as it indicates that the borrower is at risk of defaulting on their loans.
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Final Thoughts
Improving your CIBIL score is crucial to achieving financial stability and securing loans on favorable terms. By using the strategies discussed in this article, such as: By doing things like paying your bills on time, reducing your credit utilization, and checking your credit report regularly, you can take control of your credit score and pave the way for a brighter financial future. Remember that building a strong credit history takes time and effort, but the rewards are worth it. So start improving your CIBIL score today and unlock a world of financial opportunity.
