7 Tips to Help You Improve Your CIBIL Score

Borrowers can avail of loans to access necessary funds for various personal or professional financial requirements. When a borrower applies for a loan, the lender assesses their credit score while deciding on a loan application. Your credit score reflects your creditworthiness and repayment capacity. A higher credit rating indicates responsible credit behaviour and enhances your chances of receiving a loan on good terms. In India, many lenders require borrowers to have a CIBIL score of 750 plus to be eligible for a Home Loan at feasible terms.

If you have a low CIBIL score, you can improve it by taking necessary financial steps such as paying your bills on time, maintaining a low credit utilisation ratio, and so on. Your credit score is based on a comprehensive document called a credit report, which consists of information related to all your credit accounts – closed and running.

In India, credit scores range from 300 to 900, with 900 being the highest score. The credit score range and its significance depends on the credit scoring model adopted by the credit bureaus in India. 

CIBIL Score Range

6 Tips To Increase Your CIBIL Score

1. Keep Your Credit Utilisation Ratio Low

The credit utilisation ratio refers to the percentage of credit you are using from the total available credit. Keeping your credit utilisation low, typically below 30%, can help in improving your CIBIL score. A low credit utilisation ratio also indicates that you are not overly reliant on credit and that you can manage your finances responsibly.

2. Always Pay Your Dues on Time

Whether it is your credit card bill or the EMI of your Home Loan, always pay your bills on time. While assigning you a credit score, the credit bureau assesses your repayment history from your credit report. Your repayment history is an important factor as it accounts for 35% of your credit score. Therefore, one should practice pay to demonstrate responsible credit behaviour and to avoid penalties for late payments.  

Also Read: How to Pay Off Your Home Loan Quicker 

3. Avoid Applying for Credit if Not Necessary 

When you check your credit report or score, it is termed as a soft enquiry. A soft enquiry does not affect your credit rating. On the other hand, when a financial institution assesses your credit report, it is known as a hard enquiry. Hard enquiries can negatively impact your credit score. Therefore, applying for multiple loans and credit cards simultaneously can lead to several hard enquiries, causing a decrease in credit scores. Thus, apply for a loan or a credit card only when you need it. 

4. Maintain a Healthy Credit Mix

If you wish to maintain a good credit score, make sure you have a healthy credit mix. Essentially, loans are of two different types: secured and unsecured. Unsecured loans, such as personal loans, do not involve any security and usually attract high rates of interest. On the other hand, secured loans, such as a Home Loan or a Loan Against Property, are backed by collateral and therefore, lenders sanction these loans at affordable interest rates.  

If you want to keep your CIBIL score on the higher side, maintain a healthy credit mix of secured and unsecured loans. Maintaining a healthy mix depicts you as someone reliable with the ability to manage different types of credit. 

5. Monitor Your Credit Report

Monitoring your credit report regularly is essential for maintaining a healthy credit score and protecting your financial well-being. Check your credit report regularly for any errors or discrepancies. If you find any inaccuracies, dispute them with the credit bureau and have them corrected. This can ensure that your score accurately reflects your creditworthiness. 

6. Avoid Closing Old Credit Accounts

The length of your credit history is a significant factor in determining your credit score. It accounts for approximately 15% of your overall score. You may want to close old accounts or get rid of credit cards that you do not use anymore. However, doing so will negatively impact your credit rating as it will lower your overall credit limit and in turn, increase your credit utilisation ratio. Keeping old credit accounts contributes positively to your credit history. Even if you don't use these accounts frequently, they help you establish a longer and more stable credit history.

Also Read: Know how Mortgage Loan affect your CIBIL score 

Before applying for a Home Loan, get access to your credit report. If your CIBIL score is above 750, you can go ahead and apply for a Home Loan. However, if your CIBIL score is low, you can improve it by paying bills on time, maintaining a low credit utilisation ratio, and monitoring your credit report regularly. Following these steps can enhance your creditworthiness and can help you become eligible for better loan terms.

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