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

A CIBIL score is one of the most important factors that lenders check to assess your creditworthiness. This score is based on various factors, including your repayment history, outstanding debt, length of credit history, types of credit accounts, and recent credit inquiries. A high credit score, in addition to meeting other criteria, improves your chances of loan approval with low interest rates and better terms. 

In case you have a low CIBIL score, it is essential to first recognise the causes of a low CIBIL score before actioning it. In this article, we discuss some factors that can cause a decrease in your CIBIL score and some effective ways to improve it. 

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 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 utilisation rate, and multiple credit inquiries.

Listed below are some of the causes of a low credit score:

1. Irregular or missed payments:  Not paying your EMIs regularly or missing your EMIS can reduce your credit score. Also, you may incur penalties for making late payments. 
2. Deleting your credit history: Removing your credit history can lead to a decrease in your CIBIL score, as it eliminates important information used to determine your creditworthiness. 
3. High credit-utilisation ratio: Using more than 30% of your credit allowance can lead you to a low CIBIL score.
4. Multiple credit enquiries - When you request a loan, the lender evaluates your credit report, which is typically referred to as a hard inquiry. If multiple hard inquiries are conducted in a short period of time, your credit score will drop. It will also be reflected in your credit report.

Few Things to Consider to Improve Your CIBIL Score

1. Repay credit card dues on time: Your credit score can be improved by paying off unpaid credit card bills. 
2. Limit credit utilisation: Utilising less than 30% of your credit card limit will help you maintain a good credit score. However, not using your credit card at all may harm your credit score.
3. Keep a check on your credit report: Check your credit report occasionally for inconsistencies and mistakes. Any errors can be immediately reported and fixed.
4. Apply for a loan when necessary- Only apply for loans when you require them, as multiple hard inquiries conducted by lenders can affect your CIBIL score negatively.

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 your CIBIL score online for free.

Final Word

In conclusion, your CIBIL score plays a significant role in determining your creditworthiness, influencing your ability to secure loans at favourable terms. By proactively enhancing your financial profile can pave the way for better loan opportunities in the future.