Useful Tips for Improving Your CIBIL Score
What is CIBIL Credit Score? - Credit Information Bureau India Limited (CIBIL) is a Credit Information Company (CIC) that was born in August 2000. CIBIL has been set up in order to tap all the financial transactions done by you related to loans, credit cards or other such transaction.
This information helps in building a Credit Information Report (CIR) in your name and it forms the basis for the acceptance or rejection of loan applications that you make to any bank or financial institutions as this information is shared by CIBIL with all banks and financial institutions in order to make them aware of your credit worthiness. In other words, it is just like your mark sheet. Your success or failure of getting a loan is based on your credit score. It is a proof that seals your credit worthiness.
You application of loan may be accepted or rejected on the basis of the credit score that is published by CIBIL. Every single transaction in your name is considered while your credit score gets generated. The score ranges from 300-900 points. You are considered to be of sound credit worthiness if your score stands anywhere above 700. You have a fairly high chance of receiving the loan that you have applied for if you have a score above 700.
Tips for Improving Your CIBIL Credit Score
1. On Time Payments – The biggest blunder you can create is late payments or missed payments. In order to make sure that your credit score does not dip, it is mandatory for you to create a good loan repayment story in your name. Each installment that you miss against any loan or credit card payment or any type of late payment happens, it is bound to impact your credit score points.
2. Number of Credit Cards and Loans Affect you Credit Score - When credit cards were first launched they were seen more as a status symbol or something to flaunt instead of their utility. Having more than 2 credit cards or having 7 to 8 credit cards of different companies was a show off practice but this no more holds any substance. If you are the one who has more credit cards in your name then it may work against you. Here, it is always advisable to get the limit of 2 or 3 credit cards in your name increased to a substantial amount and block the remaining cards in your name. For example – Having 2 cards with a limit of Rs 50,000 each is better than having 5 cards each with a limit of Rs 20,000. Makes sense isn’t it?
3. Do not utilize your Credit Cards to Their Full Limits – If you are the one who exhausts the limits of your credit card every month, or in other words, exploit them then trust me you are on your way to affect your CIBIL score big time in a negative way. If you are using your credit cards to 80 or 90 percent of their limits, it is viewed as if your life works only on credit even if you are doing so to keep a check and manage your credits effectively. Using your credit cards to 30-45 percent of their limit is considered a good practice.
4. Unsecured credit ruins your score – If your debts include a major chunk that has been raised from credit cards and personal loans then here is an alarm for you. These loans are considered to be unsecured loans and whether you keep this intention or not it is considered that the borrower is at quite a liberty to run away with the money raised from unsecured loans. Thus, if your debt history shows more of unsecured loans, your credit score graph may always show a dip.
5. Think twice before committing to become a guarantor – Now what you do if a friend of yours approaches and asks you to become a guarantor for his XYZ loan because “a friend in need is a friend indeed” and because “once upon a time he did blah blah blah for you.” You say “YES”. Better DON’T. This is so because if he defaults in payment and you act as his guarantor you also get caught in the web of defaulter and your credit score falls. It is always advisable to think twice before you commit to any such thing like becoming a guarantor and make sure that you are well versed with the credit worthiness of the person who has asked you for such favor. Make sure that you read all the documents carefully and beware of your documents and signatures getting forged.
6. Duration of credit history matters – A longer credit history works in your favor in comparison to a short 6 month old credit history. If you have been making regular payments for all your debts for past 5-6 years you are bound to create a good credit score for yourself. This means that more the duration more are the chances of a better credit score.
7. Number of inquiries and time duration – There is a correlation here. If you have made a number of inquiries in a very short duration of time then that would surely have an adverse affect on your credit score. If you have inquired about a personal loan, home loan, auto loan as well as credit card too often, this sends a wrong message. It can be decoded as your hunger for credit. This surely would raise alarms in the minds of lenders and would, in turn, affect your score. So, you have to remember that useless loan and credit card queries should be avoided.
8. Debt settlement – There are people who snatch all that they can on credit and then run out of means to repay their debts. In this situation they go for debt settlement (opting to pay a minimum amount than what they have borrowed) and or show their back and get themselves listed as “write-offs” by companies. In both cases, however, hard you may try, getting a fresh loan gets far beyond your reach and it goes without saying that credit score is badly hit. It is always advisable that you borrow only as much as you are sure you will be able to repay.
9. Joint Accounts and Co-Signed Accounts – All those who have joint accounts and co-signed accounts and also have loans against those accounts have to be extra careful. If you are a joint account holder then obviously any loan or debt would be borne jointly (it maybe so that the other joint holder has applied for the loan and was in need of the entire amount) and any missed or late payment would surely reflect in your credit history which will adversely impact your CIBIL score. Any negligence on the part of your joint holder can run you in trouble so make sure that you stay cautious about this.
10. Reviewing of credit history – It is always advisable that you review your credit history from time to time, maybe 3-4 times every year. This would help you in avoiding any unpleasant situations like rejection of loan applications thus enable your credit report to accurately reflect your current financial position.
Contributed By: Megha Sharma
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.