7 Tips to Help You Improve Your CIBIL Score

A potential borrower's credit score is one of the first things that lenders analyse while deciding on a loan application. An individual's CIBIL score indicates their attitude towards credit and their repayment capacity in general. The higher an individual's credit rating, the higher their chances of receiving a loan and that too on good terms and conditions.  

In India, lenders require borrowers to have a CIBIL score of 750 plus to be eligible for a Home Loan. . Anything under 750 either leads to application rejection or an extension of a loan offer on unfavourable terms and conditions.  

So, what should individuals with a low CIBIL score do? The good thing about CIBIL score is that it is not absolute. By taking a few measures, borrowers can improve their personal CIBIL report. This article is a must-read for aspiring Home Loan borrowers who wish to avail themselves of a lucrative Home Loan deal but aren't able to do so because of their bad credit rating. This article sheds light on simple tips that will help you improve your credit score.  

To understand what qualifies for a good credit score, you should first understand what a credit score is. As many of us might already be aware, a Credit Score is a numeric representation of your creditworthiness. It is based on a comprehensive document called a credit report which consists of detailed credit related information of all your accounts – closed and running.

In India, it is a number on a scale of 300 to 900 where a number higher than 750 is considered to be good and becomes better as it goes higher. Likewise, a number below 750 is considered fair and becomes bad to worse as you go down.  

Now a point to note here is that there is no standard range that is good or bad, but it all depends on the credit scoring model adopted by the credit bureaus in India. The most referred score is that of CIBIL and hence the range we refer to is according to their model. Lenders usually lend to individuals with a score of 700 or more, but there can always be exceptions.  

CIBIL Score Range

7 Tips To Increase Your CIBIL Score

1. Keep Your Credit Utilization Ratio Low

These days, almost everyone pays for everything using their credit cards. After all, it is easier to carry cards than to carry cash. Further, banks are always running offers on credit cards that help you save money and win reward points.  

It is absolutely okay to pay for everything using a credit card as long as you can clear all your dues at the end of the month. If you are only clearing the minimum due amount month after month, you are in trouble. Clearing just the minimum due amount not only leads to increased accumulated interest but also lowers your credit utilization ratio.  

To be able to get any loan on favourable terms and conditions, a CIBIL score of 750 plus is necessary and to be able to maintain this score, you must keep your credit utilization ratio anywhere between 30% and 40%.  

If your credit utilization ratio is high as of now, one of the easy ways to reduce it is to increase your credit limit. If you have been a disciplined and reliable borrower, your lender will most likely offer you a higher credit limit on their own. However, if you are guilty of having made mistakes in the past, you may have to submit a request. 

2. Always Pay Your Dues on Time

Whether it is your credit card bill or the EMI of your car loan, always pay your bills on time. While creating your credit card report, the first thing that agencies do is assess your repayment history – if you have been good with credit repayment, it will reflect well on your credit score.  

If all your EMIs are well within your budget but your forgetful nature does not support your commitment to being financially responsible, you could benefit greatly from setting up payment reminders. Set the reminder for 2 to 3 days before the EMI payment date. You can also set up automatic payments using the net banking option. Once you do that, your EMI will automatically get deducted as per the mandate you gave your lender. 

Also Read: How to Pay Off Your Home Loan Quicker 

3. Do Not Apply for New Credit Cards if You Don't Need Them

It is normal for individuals to want to know their CIBIL score. When an individual borrower requests their credit report, it is known as a 'Soft Enquiry'. A soft enquiry does not affect an individual's credit rating.  

However, when banks/lenders/credit card companies ask for a potential borrower's credit report, it is known as a 'Hard Enquiry'. Hard enquiries negatively impact an individual's credit score as well as their credit age.  

When you apply for a loan or a new credit card, the first thing that a lender/credit card company does is approach a credit bureau for your credit report. Too many Home Loan and credit card applications lead to too many hard queries and therefore, a negative credit score. Thus, borrowers must apply for a loan or a credit card only when they need it. Applying unnecessarily for new credit cards must be avoided. 

4. Maintain a Healthy Credit Mix

If you wish to maintain a good credit score, make sure to maintain 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. Credit cards offer unsecured credit and therefore, credit card companies charge quite a high rate 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. Report Errors When You See Them

While credit bureaus are quite cautious while preparing an individual's credit report, mistakes can happen, and errors can creep in. Thus, check your credit report from time to time for errors and mistakes. If you see something is wrong, report it immediately and get it rectified as soon as you can. 

These days, it is quite easy to get access to your credit report. Many online websites allow users to download their credit reports. Use one of these websites.  

6. Opt for a Longer Tenor on Your Loans

If you are planning to take a loan of any kind, try to opt for a longer tenor. Most borrowers opt for a short tenor as they want to save on their total interest outgo and become debt-free as soon as possible. The problem with short tenors is that though they help you save money, they do so by making your EMIs hefty. This, sometimes, leads borrowers to feel burdened and stressed. Also, while experiencing a financial crunch, paying EMIs becomes difficult or nearly impossible, which in turn, leads to missed EMI payments. Thus, a short tenor can, sometimes, indirectly affect your credit rating negatively.  

When you opt for a longer tenor, on the other hand, you increase your total interest outgo but you make your EMIs affordable. A longer tenor, therefore, facilitates easy EMI payments even during a financial emergency.  

In conclusion, if you wish to avoid any risky situations or scenarios, it's best to opt for a longer tenor and keep your EMIs as affordable as possible. Further, always borrow only what you can easily repay and what you need. Just because you are being offered a 2 Crore loan, does not mean you should take it. Stay smart when it comes to credit and practice strong financial discipline. 

7. Do Not Close Old Credit Accounts

It is normal for people to want to close old accounts or get rid of credit cards that they do not use anymore. Unfortunately, doing so will negatively impact your credit rating as it will lower your overall credit limit and in turn, increase your credit utilization ratio. If you had a credit card that you used and you paid all your dues on this card on time, closing this credit card account will do you more harm as closing the account will wipe off the good repayment record you had built. So, do not close old credit card and loan accounts as they pay testimony to your good repayment capacity and behaviour.

Also Read: Know how Mortgage Loan affect your CIBIL score 

Before applying for a Home Loan, get access to your personal credit report. These days, many online websites offer these reports for free. If your CIBIL score is above 750, go ahead and apply for a Home Loan. However, if your CIBIL score does not look good, do not make the mistake of applying for a Home Loan immediately. Instead, follow the tips shared in this article and improve your credit rating first. Know that you will have to practice financial discipline for at least a few months before you will begin to see any positive changes in your credit report. So, be patient and keep yourself on the right track until you have reached the magic number, i.e., 750.  

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