One of India’s four credit bureaus, CIBIL, generates reports based on your credit score. Your credit history is reflected in your CIBIL score. Before authorizing loans and other credit-based financial goods, lending organizations use it to assess your creditworthiness.
The majority of lenders have begun categorizing customers based on their credit scores and now offer risk-based pricing on particular loans & Credit Cards. The interest rate and Loan amount decrease when the risk increases. Well, we have curated this article to educate and help you understand how you can improve your CIBIL score. So, buckle up and stay tuned with us till the end to uncover every important aspect!
What is Credit Score?
Your credit score is a three-digit figure that lenders use to determine whether you will get any kind of loan or credit card. The chances for loans and credit card approval increase if you have a good credit score. Also, a bad credit score can be improved by taking some measures while repaying a loan.
There are very simple and easy-to-do things that can help raise your credit score. Of course, it demands some time, a little bit of work, and patience above all.
How is your CIBIL score calculated?
Typically, the lending organization assesses a number of variables to calculate your credit score. This includes factors such as your payment history, the duration of your payment history, credit applications, the total amount of debt, the credit mix, etc. Each of these factors is given a different amount of weightage, and a good credit score demands constant effort.
The CIBIL score ranges from 300 to 900. A score of 300 to 549 is considered poor, whereas a score of 550 to 700 is considered average. However, to avail of any kind of credit service, a score of 750 is an ideal choice. It can be simple to get loans if your credit score is excellent, but the contrary is also true.
The table below is for your reference to understand the typical CIBIL score range and how it is rated.
What are the ways to improve credit score?
As mentioned above, your CIBIL score, which is based on your CIBIL report, it is a crucial aspect of your credit history. For people who need a personal loan right away, a CIBIL score of less than 750 can be a roadblock. However, this score is simply a digit and can be raised. All you have to do is follow the steps mentioned below, and your loan or credit card application will be approved without any further ado.
Repay credit card dues on time.
Your credit score can be raised by paying off unpaid credit card bills. Getting into the habit of regularly paying the minimum amount due when it appears on your credit card statement could help you avoid paying late fees. This minimum payment is about 5% of the billing total for that cycle. But this results in a pile of debt because interest and taxes are added to the bill in the following cycle.
Paying your bills on time helps to raise your credit score over time and limits interests from rising any more.
Check for errors in your credit report.
You can think you have an excellent credit history, but there could be a number of hidden faults lowering your credit score.
Let’s imagine that despite the fact that you have fully paid off your loan and closed it from your end, it is still showing as current due as a result of an administrative mistake. You must also watch for any other faults or questionable activity. If you correct these mistakes, your score will immediately increase.
Try to maintain a healthy credit mix.
It is generally advised to have a good mix between secured loans, such as auto loan or mortgages, and unsecured loans, like credit cards and personal loans. Lenders favor borrowers with more secured loans, and credit reporting agencies likewise favor those borrowers with high credit scores. If you have more unsecured loans than secured ones, try prepaying your unsecured loans to maintain a healthy mix.
Don’t apply for multiple new credit lines.
Opening a new credit line will increase your credit limit, but every application for a new credit line generates a hard inquiry on your credit report. A hard inquiry is nothing but a detailed analysis of your credit profile to know how much risk you possess as a borrower.
As a hard inquiry is reflected on your credit report for two years, multiple hard inquiries in a short time period can negatively impact your credit score. A hard inquiry will eventually lead to the rejection of your loan application, a highly negative event.
Never ever give a hint of risk.
The credit scoring models are meant to identify potential dangers or early indications of stress in the borrower’s profile.
For instance, failing to make credit card payments, paying unexpectedly less than the total amount owed, or using revolving credit are the first indications of stress in a borrower’s credit profile. Other changes, such as obtaining cash loans or paying for business expenses with credit cards, are indications of stretched cash flow.
Set reminders to pay your EMIs regularly.
Missing out on repayments on your unpaid loan can be a grave mistake because it can negatively affect your credit score. When it comes to making EMI payments, you must pay them on time. In addition to paying penalties if the EMIs are late, your credit score will also suffer. Set reminders to pay on time if you have trouble remembering dates.
Choose a longer tenure for repaying your EMIs.
Taking out a loan with a longer repayment period can help improve your CIBIL score. This will result in a reduced EMI and make it simple for you to make all payments on time. You’ll avoid being included in the list of defaulters, and your score will significantly improve to a good one.
Patience and persistence is the mantra to success.
It’s quite obvious that credit scores don’t increase overnight. It demands consistency along with some time. As a result, you have patience and keep an eye on your credit report, various credit lines, spending habits, and the due date for any debts. It will assist in raising your credit score and enhancing your creditworthiness over time.
Indeed, increasing your CIBIL score is an uphill task but can be achieved with the help of discipline and planning.
How to improve your credit score after a loan settlement?
Your monthly EMIs might be reduced through loan settlement, but your credit score would suffer. However, to raise your credit score following loan repayment, you must follow the things below:
Pay all of your EMIs and dues on time.
Don’t look out for loans immediately away.
Build a credit history.
Try to maintain a low credit utilization ratio.
Key takeaways
As you now know, there are many different factors that come together while calculating your CIBIL score. That end result comprises numerous factors. Your CIBIL score will gradually rise if you lower your existing debt and follow the tips given here to take steps to establish a strong credit history.
The peace of mind that money cannot buy will be yours once you are qualified to apply for loans whenever you need them, which is the most crucial benefit of all. So, try to imbibe each and every tip given above and strongly abide by them.
FAQs
Your credit score would suffer if you had a history of missing out on payments on any of your loans. A higher utilization pattern results in more repayments, which lowers your credit score.
More personal (unsecured) loans would have a negative impact on the score as well because they have higher interest rates than home or auto loans and are, therefore more likely to experience defaults and this may affect your credit score.
If you are in urgent need of money and apply for credit from multiple lenders, it will affect your score because the lenders will be hesitant to provide you with a new loan while assessing your creditworthiness.