Here’s How a Short-Term Loan Can Help You Improve Your CIBIL Score

The CIBIL score is a three-digit number that signifies a borrower's creditworthiness and repayment capacity. It is a measure of how reliable a borrower is. All lenders check the borrower's CIBIL score before lending them funds. It helps lenders identify the risks involved in extending loans. The ideal score for any type of loan is 750 and above. But, what if you are in need of a credit and are wondering how to improve your credit score immediately? In this article, we share with you some of the best ways to improve your CIBIL score with a short-term loan.  

A one-line answer is to take a short-term loan and repay it quickly and diligently. Personal loans are short-term loans that are sanctioned by the lender for a short tenor. One of the biggest advantages of a personal loan is that these loans come with zero end-use restrictions. Let us now look at how a short-term loan can help lenders increase CIBIL scores.

How to Use Short-Term Loans to Improve Your CIBIL Score?

When it comes to improving your CIBIL score, a short-term loan can prove helpful in two cases. First, if you do not have a credit history, a short-term loan can help you build one. If you have never taken a loan in your life or if you made the mistake of closing old loan accounts, your CIBIL score will either be zero or negative. A zero CIBIL score means that your credit history is relatively new, and the credit information agency does not have ample information on you to assign you a credit rating. A negative CIBIL score, on the other hand, implies that you do not have any credit history at all. If your CIBIL score is zero or negative, you can increase CIBIL with a short-term loan. Availing of the loan and paying it off without any default will help you build a solid CIBIL score and establish yourself as a reliable and trustworthy borrower. 

If your credit score is zero or negative, even a credit card can help you increase your CIBIL score. However, exhausting the limit on your credit card is not good for your credit history and credit score. Also, paying only the minimum due each month is another habit that portrays a borrower to be unreliable. It is, thus, that borrowers trying to increase CIBIL scores should opt for short-term loans instead of new credit cards.  

Also Read: Ways to Improve Your Credit Score with a Credit Card 

A short-term loan can also prove useful if you have a low CIBIL score. Availing of the loan and paying it off on time will help you establish yourself as a reliable borrower by building a clean credit history. However, know that improving your CIBIL score takes time. 

Effective Methods to Improve Your CIBIL Score

Taking a short-term loan will most certainly help you improve your credit rating. However, if you do not want to improve CIBIL with a short-term loan, here are a few tips that will help you build your credit rating: 

Pay EMIs and Credit Card Bills on Time

Your credit history makes up 35% of your credit score and is the most important factor that affects it. Keeping a clean credit history helps one maintain a good CIBIL score.  

If you have a low CIBIL score, start paying credit card bills and EMIs on time. This will help you build up a clean credit history and doing so over an extended period will also help you push your CIBIL score from low to good or excellent. You can also set up reminders on your phone or email to ensure that you do not miss the due dates. You can even authorise your bank to auto-debit the money a day before your loan or credit card bill's due date. This will save you from keeping track of different due dates, especially if you have more than one loan or many different credit cards. 

Limit Credit Exposure

Credit ratio is the ratio of the balance on your credit card to the total limit available to you on your card. Borrowers who exhaust their credit limit have a high credit utilisation ratio. For lenders and credit rating agencies, a high credit utilisation ratio indicates unreliable credit behaviour. Therefore, borrowers who want to improve their CIBIL score immediately should never exhaust their credit limit and use credit wisely. Yet another thing that increases a borrower's credit utilisation ratio is paying only the minimum due on the credit card and not clearing the entire amount due. So, those who want to increase their CIBIL score should also make it a habit to clear their entire credit card bill each month and not just the minimum amount due. 

Limit New Credit

Applying for new credit every now and then also reduces one's CIBIL score as it shows a borrower to be credit-hungry. Further, every time a borrower applies for a new loan or credit card, their lender contacts a credit information agency to enquire about them and their credit standing. Each such query from a lender gets registered as a hard enquiry and too many hard enquiries harm a borrower's CIBIL score. It is for this reason that borrowers are advised to make a loan application only when they absolutely need credit. 

Check Errors in the CIBIL Report

Credit rating agencies assign credit to borrowers based on the information provided to them by lenders and other financial institutions. Sometimes, wrong information may get passed to credit information agencies, which leads to agencies giving an incorrect CIBIL score to borrowers. Borrowers should check their CIBIL report at least once every year. Borrowers trying to improve their CIBIL score should check their CIBIL report at least twice every year for errors. In case they see any errors, they should report them immediately. 

Also Read: Improve Your Credit Score Immediately to Get Your Loan Approved 

Final Words

Your credit score can play a significant role in getting you the best loan deal. So, make sure it is at least 750 or above. If your CIBIL score is low, you can avail of a short-term loan and repay it without defaulting on it. This will help you in two ways: to build a credit history and build a clean credit repayment history. You can use the tips mentioned in this article to improve your credit score as well.