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Steps to Improve and Maintain Your CIBIL Score

Your CIBIL report is an important record of your past loan and credit card history, including repayment. Lenders usually have different parameters for issuing a loan. The RBI mandates banks to check the CIBIL score of loan and credit card applicants while evaluating their application. This establishes your creditworthiness, giving the lender of the bank in question an idea of your past and present behavior, so as to decide your intent of repayment during the loan tenure. A poor credit score can lower your chances of getting a loan approval and could turn out to be a nightmare, particularly in situations when you need the money urgently. When you have a bad credit score, your unfavorable past actions indicate that you are not creditworthy enough to get a loan from the usual sources of finance.

Why CIBIL Score Is Important?

CIBIL scores create the first impression for the lender and a person who manages his/her finances properly will have a high score. These scores decide whether the lender will approve your loan application or not. Normally, banks evaluate your credit score through CIBIL and if your score is good, it becomes easier and quicker for you to avail a loan for your needs. CIBIL is the first and one of the most trusted credit bureaus in the country and rates high on credibility due to its customer-centric grievance redressal system. Banks and NBFCs find its scoring technique more reliable than any other credit bureaus operating in the country. When the bank or financial institution receives a loan request, it checks the credit score or CIBIL score to assess the eligibility of the party to get a loan. The application may not be taken into consideration or fail to get through, if the score does not live up to expectations. Even if the credit score is high, the application will be considered, and evaluated on other factors before approval.

What is a Good CIBIL Score?

As explained above, a CIBIL score has a crucial role to play in anyone’s financial journey. Having a good credit score is important if you do not want to mar the chances of availing a credit or the advantages that accompany a healthy score. CIBIL score ranges from 300 to 900. Having a credit score of 750 or above is indicative of a favourable history of repayment behaviour. It shows a consistent track record of timely payments and reassures lenders that the person has a high probability of meeting debt obligations. Lenders are more likely to grant loans to people with such a score. The advantages of maintaining a good CIBIL score is that financial institutions will grant a loan to such applicants at lower rates of interest and much paperwork will not be needed. A good score also means a longer repayment period, quicker loan approval process, and a larger loan amount with favorable interest rates. In addition to the credit score and credit report, banks and other financial institutions pay heed to factors such as annual income, age, and employment of the person. These factors are considered only if you have a good credit score. Your application will be rejected outright if you have a low credit score.

How You Can Increase Your CIBIL Score?

Having understood how important it is to have a good CIBIL score, let’s take a look at what you can do to increase your credit score, in case it is not up to the mark. In case you are planning to apply for a loan or credit card and want to improve your score.

  • Check your credit report and resolve disputes : Making periodical checks on your credit report is a good habit because it gives you crucial insights on defaults and delayed payments, which can bring your score down. It also provides the information recorded in the credit report so that any negative information can be corrected and the credit score improved. Approach the bank or credit bureau and know about the corrective measures you need to take in case you find delays or defaults mentioned in the report. In case you find any error or discrepancy in the report on a loan or credit card payment, seek a correction. Normally, it may take 30 days to resolve the dispute and for your credit score to improve. Refrain from applying for a new loan during this period.
  • Pay the pending loans : It is essential to make prompt payments each time a loan repayment becomes due. In case you are making EMI payments and if you are struggling to dish out the amount each month, try getting the loan restructured. This will make it easier for you to repay the debt.
  • Make timely credit card payments : Don’t come too close to the limit of your credit card and pay not only the minimum amount due, but the entire amount or at least a bigger sum, so that it does not adversely affect your credit score.
  • Refrain from repeatedly applying within short periods : When a loan you have applied for gets rejected, the information gets recorded in your credit report. Even if you go to another financial institution seeking a loan, they will see your history of rejection and your application will meet the same fate once again. The best thing to do in such a case is to wait for your score to improve and avoid applying repeatedly for credit.
  • Avoid exhibiting a credit-hungry behaviour : Every time you ask the bank for a loan, the bank gets in touch with CIBIL for your credit report and this inquiry gets recorded. Repeated enquiries can reduce your credit score since it conveys to CIBIL that you keep taking frequent loans. Even if you may be compliant enough to make timely repayments, the bank may doubt your intention of paying back on time.

How to Maintain a Good CIBIL Score?

After you have managed to improve your credit score, it’s important to maintain it by acting responsibly and using your credit wisely. Here are some pointers to help you maintain a good credit score. Paying your bills on time is important. Non-payment of even a minor bill can get reported to the credit bureau and bring your credibility down in the credit report. Maintain low credit card balances. Higher credit card balance in relation to the credit limit can work adversely on your credit score.

Keep debts to a minimum. In addition to credit card balances, loan balances also have an impact on your credit report. Too much debt brings down your credit score.

Apply for credit only when it’s absolutely necessary. We have already talked about how multiple credit applications and enquiries can ruin your score. Tread with caution and apply only when you are in dire need of money and there are no other sources to help out.

Check your credit report ever so often to rule out errors that may have brought your CIBIL score down.

Remember to close your loan account after you have paid the dues. Collect the loan closure letter from the bank or NBFC since there may be times when you have closed the loan, but the financial institution hasn’t updated the information at their end.

FAQs on Steps to Improve and Maintain Your CIBIL Score

What is a credit report?

A credit report indicates the history of credit behavior and provides an in-depth detail of every credit you have availed till date in the form of secured or unsecured loans.

What is a credit score?

A credit score or CIBIL score indicates how creditworthy an individual is. Since this score is given by the country’s most reputed credit bureau, it plays a crucial role in an individual’s ability to borrow from banks or NBFCs (Non-Banking Financial Corporations). Credit score or rating is a three-digit number between 300-900 and it is the first impression a lender gets about how prudent the borrower is.

What is credit repair?

Credit repair is concerned with improving or rebuilding your credit standing and helps it come to a level that makes you eligible for availing a credit.

Does taking a secured loan or unsecured loan have the same impact on the credit score?

Car and home loans are secured loans. A loan without a collateral given as security is an unsecured loan. Personal loan and credit card applications come under the category of unsecured loans. You get a higher credit score if you avail a secured loan.

Will a bounced cheque affect your CIBIL score?

A bounced cheque will not have any effect on your CIBIL score. Your credit information report is made up of information related to loan and credit card repayments and it does not matter what transactions happen in your savings bank account and current account.

Which is a better option – single or joint loan account?

Joint loan accounts carry the risk of your credit score getting affected due to the other holder’s negligence. When there is a missed payment because the other party isn’t prudent enough, it spoils your chances of getting a loan sanctioned to you in future.