How Long Does it Take to Improve a CIBIL Score?

In India, the Reserve Bank of India has authorized four credit information bureaus to collect information on credit users and assign them credit scores. These credit information bureaus are Experian, Equifax, CRIF Highmark and TransUnion CIBIL. Of these four, TransUnion CIBIL is the most popular and most lenders work with this credit information bureau when they want to pull out a borrower’s credit report. TransUnion CIBIL has compiled data on over 600 million credit users and over 32 million businesses. The credit score that TransUnion CIBIL assigns credit users is known as the CIBIL score. The credit rating agency calculates a credit user’s credit score after assessing various factors, such as the borrower’s credit history, outstanding debt, credit exposure and new credit applications, etc. The CIBIL score varies between 300 and 900 and reflects a borrower’s creditworthiness and ability to repay loans on time. The higher a borrower’s CIBIL score or the closer it is to 900, the higher their creditworthiness and therefore, their ability to avail of credit. 

Why are Credit Scores Important?

Several different factors affect the loan application process and one’s ability to repay a loan on time. However, the credit score is the most important of these factors as it affects a borrower’s ability to avail of a loan in the first place. A borrower’s credit score serves as their first impression and helps lenders decide whether to give credit to the borrower or not.

When a borrower applies for credit, the first thing that a lender does is pull out the borrower’s CIBIL report to assess their creditworthiness. If their CIBIL score falls within the good CIBIL score range, i.e., anything between 750 and 900, the lender readily approves their loan application. Further, the lender also decides the terms and conditions of the loan based on the borrower’s credit score. Those who have a good CIBIL score get offered lower interest rates and higher loan sanctions because the lenders know that they will be able to repay the loan on time. On the other hand, a CIBIL score of 650 or below tells a borrower that there is a risk involved in lending money to the borrower. Thus, in this case, lenders either reject the borrower’s loan application or charge a high rate of interest to make up for the risk involved.

Also Read: Importance of CIBIL Score and Tips to Improve It  

What is a Good Credit Score Range?

If your CIBIL score lies between 750 and 900, it is within the good credit score range. Such a credit score is the sign of a borrower who pays EMIs and credit card bills on time, maintains a low credit utilization ratio and applies for credit only when they need money. Such borrowers are serious about loan repayment and therefore, lenders see no risk in lending money to them. Borrowers whose CIBIL score falls between 700 and 750 are borrowers who have missed one or two EMI payments in the past but have been otherwise consistent with loan EMIs and credit card bill payments. Thus, lenders know that there is some risk involved in lending money to such borrowers. However, since the risk is not too high, lenders usually approve loan applications from borrowers whose CIBIL scores lie in this range. However, if your CIBIL score is below 650, lenders will see lending you money as risky business and therefore, will most likely reject your loan application. In this case, you will have to improve CIBIL score and then apply for credit.  

How Long Does it Take to Rebuild Credit Score?

Rebuilding your credit score will take time. The time it will take for you to rebuild your credit score will depend on how many missed payments and delinquencies you have on your credit report. If you have missed too many payments in the past, be prepared for it will take a long time for you to improve your CIBIL score. If you have defaulted on a loan, the information will stay on your credit report for 7 years and it will be very difficult for you to mend your CIBIL score. On the other hand, if you have missed only one or two payments in the past, rebuilding your credit score will be easy. 

Best Ways to Improve Credit Scores Fast

If your CIBIL score isn’t in the good CIBIL score range, do not worry. It is possible to enhance your CIBIL score by practising financial discipline. If your goal is to improve your CIBIL score, the first thing you must do is fetch your CIBIL report and analyse it properly to understand why has your credit score gone down. This will help you gauge the time it will take for you to rebuild your credit score. For instance, if your credit score has dropped due to a missed EMI payment, credit improvement will be easy. On the other hand, if your credit score has dropped due to a loan settlement, improving your CIBIL score will take time. Settled loan accounts stay on a borrower’s credit report for 7 years and bankruptcy stays for 10 years. Therefore, it becomes difficult to improve one’s CIBIL score after a serious issue, such as bankruptcy.

Here are a few tips that will help you rebuild your CIBIL score quickly.

• If your credit score is low, start paying credit card bills and EMIs on time. Your credit repayment history makes up 35% of your credit score and therefore, you must make it a point to keep it clean. Put reminders so that you do not miss out on payment due dates. 
• Maintain a low credit utilization ratio. Borrowers who exhaust their credit card’s limit and then keep paying the minimum amount due have a high credit utilization ratio and are seen as risky borrowers by lenders and credit utilization agencies. If you want to maintain and enhance your CIBIL score, maintain your credit utilization ratio under 30%. 
• Do not apply for credit for some time. Making too many credit card applications and applying for too many loans portrays one to be credit-hungry. Therefore, if you are going for credit improvement, limit new loan applications for some time. 
• Lastly, sometimes, a borrower’s credit score goes down due to wrong information passed to credit information bureaus by lenders. Therefore, if you are trying to improve your CIBIL score, check your CIBIL report from time to time for errors. If you see any errors, report them immediately. 

Also Read: Tips to Help You Improve Your CIBIL Score 

Final Words

If you are planning to apply for a loan such as a Housing loan or loan Against Property, know that your credit score will play a huge role in determining whether you will be granted a loan or not. So, maintain a good CIBIL score by following the tips shared in this article.