What is a Low Credit Score?
A credit score is imperative in determining your eligibility while applying for a loan. Banks and non-banking finance companies (NBFCs) rely on your credit report and credit score when you apply for a loan or credit card. Your credit score shows lenders how trustworthy you are when it comes to borrowing money and repaying it on time. In India, a credit score below 625 is considered a low credit score.
The following table displays the credit score range and what it signifies about your credit score health:
| Credit Score | Rating |
|---|---|
| 800 – 900 | Excellent |
| 750 – 800 | Very Good |
| 625 – 750 | Fair |
| 625 and below | Low |
* Note that the credit score rating mentioned above is not an absolute indicator and is in fact only a perceived market sentiment.
You can fix a low credit score simply by adding a little more discipline and diligence to your payment habits such as paying your bills on time, paying off debt, avoiding new hard inquiries and working towards building a diverse credit portfolio.
What is a Good CIBIL Score for Home Loans?
A CIBIL score above 750 is considered a good CIBIL score for Home Loans. Such a CIBIL score indicates a borrower who repays loans on time, opts for credit only when needed and in general, has a very responsible attitude towards credit. Borrowers whose CIBIL score is below 625 find it very difficult to get approved for a loan. In such cases you add a co-borrower or guarantor. However, if your CIBIL score is way too low, you will just have to work on improving it first.
Also Read: Is a Good CIBIL Score Mandatory for Home Loan Approval?
How to Improve a Low Credit Score?
CIBIL score is not absolute. By practising financial discipline and staying patient, you can repair your CIBIL score so that you become eligible to apply for desirable loans. Want to know how to repair your CIBIL score? Here are a few tips that will help:
Always Pay Credit Card Bills and EMIs on Time
Your credit history makes up 35% of your CIBIL score and is one of the most important elements that affect a borrower's credit rating. Therefore, if you want to repair CIBIL score, fall into the habit of clearing EMIs and credit card bills on time. If you have too many cards and loans which makes it difficult for you to keep track of due dates or you are, in general, someone who tends to forget due dates, set up reminders or auto-payments. You can also consider consolidating your debt to make it easier for you to remember deadlines. The idea is to maintain a clean credit history as it will help you repair and build a solid CIBIL score.
Credit Exposure
There are two bad habits related to credit cards that destroy a borrower's CIBIL score: the first is exhausting the entire limit on your credit card and the second is paying only the minimum amount due each month. Both habits portray a borrower as irresponsible. Therefore, if you want to repair your CIBIL score, maintain your credit utilization ratio, which is the ratio of credit used to credit available, below 30%. Further, try and clear the entire amount due and not just the minimum amount due each month.
Credit Mix
The credit mix is another key factor that affects the CIBIL score. Borrowers who have a healthy mix of all types of loans (read secured and unsecured) come across as more reliable borrowers, simply because their credit mix convinces lenders of their ability to handle all kinds of debt. Maintaining a healthy credit mix of secured and unsecured credit types and loans will help you build a good CIBIL score.
Also Read: Credit Mix: Different Types of Credit that Boost Your Credit Score
Refrain from Applying for New Credit
If you are working on repairing your CIBIL score, do not apply for credit if you don't need it. Every time a borrower applies for a housing loan, or credit card the lender to whom they have applied enquires about the borrower. The enquiry gets registered as a hard enquiry. Too many hard enquiries push down a borrower's CIBIL score. Therefore, borrowers must apply for credit only when they need it.
Check Your Credit Report Regularly
Lastly, sometimes, borrowers' credit scores go down due to no fault of their own. Sometimes, financial institutions and lenders pass on the wrong information about borrowers to credit information agencies, which leads to a borrower's CIBIL score going down. Borrowers must, therefore, check their CIBIL report from time to time and make sure there are no errors in it. In case they see any errors, they must report them immediately as it easily takes weeks for credit information agencies to rectify these errors and for these changes to reflect in one's credit report.
Final Words
Your CIBIL score is important and following these simple tips will help you repair your CIBIL score. So, use the information to build a good CIBIL score and avail yourself of better loan terms and conditions.
