Credit Rating / CIBIL Score – 7 Proven methods to improve

Credit Rating / CIBIL Score – 7 Proven methods to improve

We live in a globalized world where everything is connected. Believe it or not, your Credit score (read CIBIL rating), can really affect your day to day life and even your future. How? Let us have a detailed look.

People turn to credit cards or loans to help them achieve their dreams and financial goals. Your Credit Score is one of the important factors and measures in getting this, much-needed access to credit.

In simple terms, a credit score is usually a number between 300–900 that depicts a consumer’s creditworthiness. The higher the score, the more you will be acceptable to potential lenders. A credit score is calculated based on credit history, the number of open accounts, total levels of debt, repayment history, and several other factors as well.

Why does a good credit score matter?

A credit score is a way of distilling your relationship with debt, down into a three-digit number. Low credit score matters because the lower it goes, the more likely you are to default on debt – in the eyes of creditors and lenders – and to receive higher interest rates on credits and loans.
This helps lenders decide how likely you are to repay your debts and plays a significant role when securing a mortgage or even a student loan. So we should try to build a good credit score from the day we start to use a credit card.

Though many agencies measure your credit score, the most important credit rating system in India is the CIBIL (Credit Information Bureau (India) Limited).

What is a CIBIL score?

The CIBIL Score is the prime rating score followed by creditors and lenders in India. Simply put, CIBIL Score is a three-digit numeric summary of a consumer’s credit history and a reflection of the person’s credit profile. This is based on past credit behavior, such as borrowing and repayment habits as shared by banks and lenders with CIBIL on a regular basis (the details of which are featured in the consumer’s CIBIL Report).

What is a CIBIL report?

Just like any credit report, a CIBIL report is a consolidated credit report that includes the consumer’s CIBIL Score and credit summary, personal information, contact information, employment information, and loan account information. It is important to note that lenders consider both the CIBIL Score and Report to assess a person’s loan eligibility.

What is a good CIBiL score?

The CIBIL score ranges from 300 to 900, the closer a CIBIL Score is to 900, the higher are the chances of the consumer’s credit card or loan application getting approved. A score above 700 is generally considered good.

Good Credit score - CIBIL Score strategies

Factors that influence your CIBIL score?

  • Payment history: Making late payments or defaulting on your EMIs has a negative impact on your score.
  • Credit mix: Having a balanced mix between secured loans and unsecured loans is likely to have a positive impact.
  • Multiple enquiries: Too many loan enquiries may have a negative impact on your score as it indicates that your loan burden may go up in the future.
  • High credit utilization: A high credit utilization limit indicates a rising debt burden over time and may negatively impact your score.

How to increase your CIBiL score within 6 months?

You can build up your CIBiL score in a short time by making some smart moves. However, you need to practice these moves regularly and keep a tab on your Personal Loan EMIs and Credit Card monthly

 

7 strategies to build a solid credit score.

1. Pay your EMI's on time

Paying your EMI,s and credit card bills on time can help you increase your CIBiL score. Payment delays for EMIs not only force you to pay the penalty but also lower your credit score. So if you are looking to improve the CIBIL score make it a habit to pay your EMI’s on time.
Using a service that let you automate bill payments is a smart thing to do. So that you don’t miss out on deadlines.

2. Limit your credit utilization

The next thing you can do to improve your CIBIL score is by limiting your credit utilization. Using more than 30% on your credit card is considered to be high credit utilization. On the other hand, not using your credit card at all can adversely affect your credit score. If more credit is required, it is advisable to opt for a higher credit limit which in turn will reduce your credit utilization rate.

 

3.Opt for different forms of credits to make a healthy credit mix

Credit, if obtained wisely, is helpful to increase the CIBIL score.  Hence, it is advisable to include different types of credit in your portfolio that include a mix of personal and secured loans, long as well as short term loans to improve your credit history. It is advisable to close all unsecured loans and shifting to secure loans if possible.

Also, remember that a person who has never obtained any form of credit will generally have a lower CIBIL score which can make it difficult for them to obtain loans.

 4. Only apply for credit when you need it

Applying for credit too often gives the impression that you are continuously in need of credit. Only apply for new credit if you need it and repay all unwanted credits. Too much debt can affect your credit score adversely.

5. Don't fall prey of joint accounts

By applying for a joint loan account, you are held equally liable for missed payments. Your joint holder’s (or the guaranteed individual) negligence could affect your ability to access credit when you need it. It is recommended to avoid becoming a joint account holder or a guarantor of loan

6. Say no to multiple credit cards

Though multiple credit cards help you afford your everyday purchases but also your emergency expenses. Many a times this strategy can backfire, and undermine your CIBIL score. It is advisable to hold a multiple credit card only if you need higher credit and you are confident that you can pay off the bills.

7. Don’t settle loans and credit cards

Many people opt to settle a credit card or loan. What this means is that they approach the bank and ask for a deal that will allow them to close the debt for an amount that is lower than the actual amount due. While banks do, at times, entertain such requests, to reduce NPA, the settlement does reflect on the credit report and will have a negative effect on the score or a bank’s willingness to offer fresh credit.

How to know your credit score/CIBIL score?

You can get your CIBiL score in a jiffy for free. These are the simple steps you need to follow to check your CIBIL Score for free by using your PAN card.

  1. Visit the official website of CIBIL.
  2. Fill in your PAN card and other details.
  3. Click on ‘Submit’

You can also find your credit score in websites like


The final note: Keeping your credit score high and utilization of credit effectively can open your roads to financial freedom.
So the next time when you apply for credit, Make sure that your credit score is up to the mark.

Read More: You may be interested in these articles.

Ashin S Anish

Mr. Ashin S Anish is a financial market analyst, certified from the Indian School of Business. A certified Money manager from the University of California, Irvine, Cybersecurity tools, and cyberattacks specialist certified by IBM, Certified in Artificial Intelligence from deep learning.ai, Certified in Portfolio and Risk Management from the University of Geneva and Certified in Microeconomics Principles by the University of Illinois. He is also an avid money manager who believes that you have to be agile as a monkey with money matters...

Leave a Reply