Top 10 Reasons for Low CIBIL Score and How to Improve it

The CIBIL score is one of the most important factors for getting the best credit card deals, quick loan approvals, and the capacity to negotiate interest rates. The probability of gaining all of these benefits improves by making sure that you have a high CIBIL score. It is significant to note that although a borrower with a low CIBIL score may be approved for a loan or a credit card, it will come with a higher interest rate.

It is essential to first recognize the causes of a low CIBIL score before action can be taken to raise it. A borrower’s creditworthiness is shown by a three-digit numerical value called a CIBIL score. The CIBIL score is determined by the borrower’s current income, credit history, financial situation, and other criteria.

10 Reasons Why You May Have a Low CIBIL Score

A complete report of all financial transactions is used to generate a CIBIL score, which may be understood as a numerical summary of all financial behaviour, of an individual or an agency. Each time you apply for a housing loan, property loan or a credit card, lenders use this score to assess your creditworthiness.

The credit score is impacted by several variables, such as late or missed payments, a high credit utilization rate, and a lot of credit inquiries.

Listed below are 10 typical causes of a low credit score:

1. Irregular payments –Making all of your repayments on schedule is important when you take out a loan or borrow money from a credit agency. Failing to follow the rules may lead to high-interest fines as well as showing up on your credit report. Irregular payments will undoubtedly lower your credit score for at least a few years.
2. Missed bill payments – It is simple to forget about your phone or electricity payment in your everyday life unless you are aware of the long-term harm that it does to your credit score. The majority of credit reporting companies keep a track of your utility payments, and if you fail to make a payment, it will be reflected on your credit report adversely.
3. Delay in home loan EMI payments – A low CIBIL score might be a reflection of not paying your home loan EMIs on time.
4. Delay in vehicle loan repayment- A delay in repaying a vehicle loan can affect your credit score.
5. No credit history - You must have a credit history to obtain credit. You might not have a credit history if you never had a credit card or other utilities like a phone connection in your name. Additionally, if you only recently began building your credit score, you won't have a credit score, which is good enough to get credit.
6. Adverse credit history – A history of not repaying credit on time can be a reason for a low CIBIL score
7. High exposure to unsecured debt – It is not good news if you have a sizable amount of unsecured debt on your credit cards or in the form of personal loans. This may damage your credit score since it shows bad money management. You should aim to keep your debt-to-income ratio low and balance your debts by taking out a combination of secured and unsecured loans.
8. Using more than 30% of your credit allowance- Using more than 30% of your credit allowance can lead you to a low CIBIL score.
9. Being a co-applicant on a bad loan – If you are a co-applicant on a bad loan, you can expect to have a low CIBIL score
10. Multiple credit enquiries - Applying for loans should be handled carefully. Every time you apply for a loan, the lender conducts a hard inquiry, commonly known as pulling your credit report. If several of these hard inquiries are made within a short period, your credit score will be lowered and they will be recorded on your credit report.

Few Things to Consider to Improve Your CIBIL Score

1. Repay credit card dues on time - Your credit score can be raised by paying off unpaid credit card bills. Get into the habit of immediately paying the minimum amount due when it appears on your credit card statement.
2. Limit credit utilization - Utilizing less than 30% of your credit card limit will help you keep your credit score from being lowered. However, not using your credit card at all may harm your credit score.
3. Keep a check on your credit report - According to a survey, almost 20% of consumers’ credit reports contained errors. Check your credit report occasionally like twice a year for inconsistencies and mistakes. Any errors can be immediately reported and fixed.
4. Increase your credit limit - By increasing your credit limit, you will instantly lower your credit utilization ratio and ​​increase your credit score. 
5. Don’t apply for multiple new credit lines- Your credit limit is increased when you open a new credit line, however every time you apply for a new credit line, a hard inquiry is made on your credit report. A hard inquiry that results in the denial of a loan application is a very bad thing and shows adversely on your CIBIL records.

How to Check Your CIBIL Score Online? 

If you are unsure of where to look up your CIBIL score, you can do it quickly by going to the website of the credit reporting agency. Here is a complete guide on how to check CIBIL score online free.

Final Word

Your CIBIL score is a reflection of your financial behaviour. Careful and responsible financial actions over a long period can boost your CIBIL score. Careful monitoring of your CIBIL score or credit score can be done online. A low CIBIL score does not necessarily disqualify you from getting credit or a loan; it only makes it slightly harder.