The most common question which we are going to answer in this guide is: How do you improve your CIBIL score? So stay tuned!
In the 21st Century, both our health and also our credit health is equally necessary. In this generation, everything is possible but with a price for the same. And we feel that bearing that price for fulfilling our short and long term dreams have become easier due to the availability of various financial products and services. Henceforth, we always preferably lookup for a Loan. But we fail to understand that getting approval for that loan is equally essential with our dreams being fulfilled.
CIBIL (Credit Information Bureau India Limited) Score is a numerical analysis of an individual’s credit health. It is a three-digit number that depicts your creditworthiness based on your credit history. The score ranges from 300 to 900 being 300 the lowest and 900 the highest. As declared by the Reserve Bank of India, all the financial institutions are liable to check the CIBIL score of every applicant who desires a loan or credit card at the time of its evaluation. Based on this score, all the lenders check your past and present actions for anticipating your repayment intents in the future. All the Banks consider 750 and below as a lower CIBIL score which results in hesitation for approval of loans. So, it is crucial to maintain a good and higher CIBIL score.
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Causes of Lower Credit scores
To improve your CIBIL score, you should know the root causes. Let’s learn about them.
- Late Payments: The availability of various offers by various banks attract us to go for various types of credit cards. It is likely possible that we forget to repay the credit card bills. This becomes a record, and hence, it reflects in our credit history. So making timely payments is very necessary.
- Default on Debt: Always clear your credits because the failure of such actions is very strongly reflected in your credit report. Unpaid or outstanding dues will be either way charged by the financial institutions after few months hence adding up to fines, interests, and IGST.
- Charge off Debts: If your accounts are charged off, then it means that the lender determines that you do not intend to make payments of your dues. This gives a bad impression on your credit history and hence reflecting on your credit score.
- Collection of the Debt Amount: If you fail to repay your loan or credits than the lenders can hire or sell off your unpaid debts to a third-party debt collector to obtain a payment for the same from you. These collection agencies can use very harsh methods to make you pay the debts like threats of lawsuits, informing your employer or your family members.
- Bankruptcy: If bankruptcy is filed, then it means that discharging debts that cannot be repaid. Hence, once this is filed, it will be highlighted on your credit report.
- Credit utilization limit: Higher credit utilization limit reflects your rising debt burden over time. Higher the utilization limit lower the credit score and vice versa.
- Multiple Loan inquiries: Whenever you apply for any loan, the lender runs an inquiry to check your credit report. If you apply for multiple sources for availing multiple loans, then it will lead to multiple inquiries of your credit report which portrays to the lenders that you’re a credit hungry person. This results in the determination that your debt burdens will increase in the future and hence leaving them in doubt of for repayments of the same.
These are the main reasons which are generally not known to most of us when availing of any credit facility. So, next time, when you avail of any type of loan or credit card, make sure you keep in mind the above points.
11 Ways to Improve Your CIBIL Score
Anyone can have a bad credit score, no matter how smartly you handle your financial health. The benefits of getting a loan or any credit will be told to you by many, but maintaining your CIBIL score will be told to you by very few. So even if your CIBIL score is low, don’t worry, you can still improve it in due course of time. The above root causes must have given you a hint on how to maintain a good healthy score but how to improve it or maintain it will be entitled in the following tips.
1. Clear dues timely
Every month you receive, or you can check your credit statement. Nowadays, banks have made it even easier for you by extending your financial services in various smartphone applications. Banks also send you bills through emails also, and you also send you automated reminders monthly for paying your bills through text messages or emails. If you are a person who is not good with dates, then you should definitely go for such options.
2. Don’t be Credit Hungry
Use your credit limits carefully. Don’t apply for multiple loans at once. In order to keep your debt burden low, keep your credit limits or debts also lower. Plan accordingly, whenever you need debt. Having too much of debts at the same time will portray that you have insufficient funds hence leading to hunger for credit.
3. Apply for credit within your financial limit
Apply for debts only when you are sure about repaying back the money on time. Don’t be credit hungry that you keep using your credit and end up being unable to pay your debts. This will increase your debt burden.
4. Check your accounts regularly
Monitor your accounts, it’s balances, and financial statements monthly. It will help you to track your money inflows and outflows. This will help you to make plans in advance for any future debt and also its repayment options.
5. Monitoring your credit reports
Check your credit reports on a monthly basis. This will provide vital help as it will show your actual credit history. Keeping track of this will help you to go for loans and also how to maintain your credit score at the same. There are times when even the CIBIL makes some errors in your credit report. So regularly tracking it will help you to update it and record it timely.
6. Try to avoid Joint Account Holder or Guarantor Loans
Don’t keep this misconception that having a joint account of becoming a Guarantor of Loan for someone else will not affect you. If the borrower fails to repay the loan amount, it will also get reflected on your CIBIL score as well.
7. Opt for Secured cards
A secured card is a type of credit card which are issued by leading banks like ICICI Bank, AXIS Bank, SBI, etc. against the fixed deposit. The fixed deposit acts as collateral for a secured credit card. On due dates, the amount is cleared, leading towards increasing your CIBIL score.
8. Use your credit limits prudently
When any credit card is issued to you, a maximum credit limit is offered to you based on your income and other related factors. Hence, try to use your credit limit on the same prudently. Avoid using your credit card to its maximum credit limit. This will help you to control your credit requirements and viably plan for loans in the future when required.
9. Opt for a Longer Repayment Tenure
Whenever you take a loan always go for longer tenure for its repayment because your pressure for its repayment is divided for a long time and also the amount of installments decreases. It will help you to repay your credits on time and also keep yourself away from any financial defaulters.
10. Increment of your Credit Limit
If your lender asks you to increase your credit limit go for it, or if you want to increase the credit limit, then you can also ask your lender for the same. But doing this would lure you into increasing your expenses. Hence, it is a smart trick which you can avail. Try to keep your expenses low compared to your credit limits. This shows that despite you have a lot of credit; you still manage to keep your utilization lower, resulting in a positive impact on your credit score.
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11. Don’t Withdraw Cash from ATMs
Never utilize the Cash Advance limits offered by your credit card provider. But if you have taken the cash advance then pay the outstanding bill as soon as possible. The problem with this is that the interest starts piling up as soon as you take the cash advance, unlike other credit card bills where you get 30-40 days of interest-free credit.
You can easily most of the above tips to improves your credit score, but you need to understand that it takes 4 to 13 months for improving your CIBIL score completely. Credit is a good idea for fulfilling your needs but keeping a track on it on a regular basis and wisely maintaining it is what you need. Money is luring but using it smartly, patiently and with discipline helps to enjoy its benefits properly.
Hence, a healthy CIBIL score will help you to bargain for a lower interest rate on loans, quick approvals, and also get the best offers for credit cards. Since credit is luring, we should always keep our expenses in control and use them smartly and efficiently. Nobody wants to be in a Credit Risk hence to avoid that you have to keep strong control over your account balances and savings.
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