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How to Improve CIBIL Score

Basic financial jargon and conversations has by now brought the word of the CIBIL score to you. By now, you must have heard how the CIBIL score is important and how a bad CIBIL score can potentially increase your worries in the credit line world. However, with the right approach towards your financial programming, you can improve and maintain a good CIBIL score and keep the line of credit lively and healthy throughout your financial career.

Reasons for low CIBIL score

  • High Credit Utilisation Ratio: Even if you submit your payments in full within each billing cycle but spend above 50% of your total credit limit, your credit utilisation is recorded as high and hence, you will have a low CIBIL score.
  • Applying for too many Credit Cards or loan offers : If you have a thing for applying for all the credit cards that come your way, then you have a penchant that needs to be given up. Each time you make an application for line of credit, there is an in-depth algorithmic and human investigation on your CIBIL parameters. Every time this happens, your credit appetite is exposed and your score comes down by a little margin on each occasion.

  • Credit Newbie: For people who have recently taken their first loan or first credit card and reimbursed just a few EMIs, the CIBIL score is naturally quite low.

This is a good opportunity where the service time of your loan and timely repayments will keep your CIBIL score on a good start.

  • CIBIL Report Error: Let us not forget that the CIBIL comprises of a large amount of data which is collated from various sources such as banks and other credit bodies. There are always chances that the data on your record may have some discrepancy which is keeping your score low. A good way to avoid this is to check your CIBIL score frequently. Therefore, whenever feasible, go through your CIBIL report thoroughly and report any discrepancy immediately and duly follow it up. It may take many weeks for the credit bureau to correct the discrepancy.

You can see that basic alertness on credit usage and keeping a tab on the CIBIL report can help keep your CIBIL scores in the safe zone.

Factors That Help in Improving CIBIL score

1. The Outstanding on the Credit Card

An important move you can make to improve your CIBIL score is to clear off all your outstanding dues on the credit card. This clearing is smart when the expenditure on the card has been calculated. Keep in mind the due dates and strengthen your CIBIL score and credit image with the lenders.

Also, it is not a good idea to possess more than one or two credit cards. With your spending under check, it is more likely that you meet the due dates on time and complete your repayments.

2. Accuracy on the CIBIL report

Look for errors in the CIBIL report and appeal only if you feel that there is a discrepancy. CIBIL report errors happen by chance and because of mistakes of people and software. Remember that once you have made an appeal, the lending body has only a month’s time to address your grievance. Upon correction in your report, your score will go up.

3.Clean Slate

Apply for new credit only when you have cleared previous loans or outstanding credits are completely nil. This ensures higher possibility of getting a loan approval.

4. The Earliest Credit Card

Don’t believe people when they tell you that a Credit Card account not in use should be deactivated. Remember that an old credit account that you have tended to on time and with diligence is a jewel crown of your CIBIL report. Basically, by deleting an old account, you maybe deleting a good part of your credit history and damaging your own score.

5. EMI Payments

Paying timely and complete equated monthly instalments on your past big credit advances means that the chances of you getting a new big credit advance is very high. A big advance could be a car or a home loan etc. Also, good overall savings, together with a timely repayment also mean an improvement of your CIBIL score.

6. A) 30% Credit Utilization

Make it a point to not use your credit card to buy too much. You have to keep the 30% rule in mind of credit utilization. Not utilizing more than 30% of your credit limit will instate your credibility with financial bodies and raise your CIBIL score majorly.

B) Credit Limit Enhancement Upon seeing good credit ratings on your score, your lender might want to offer an increased credit limit on your credit instrument. You should positively accept this new limit. Even if you don’t want to spend more, accepting an increment on the credit limit is accepting the increased confidence that lender has in you.

So, keep the credit limit very high and the maximum spending at only 30%.

How to Maintain a Good CIBIL Score?

Following are some tips to maintain a good CIBIL Score-

  • Remember that all of your debts are equal when it comes to repayment.The CIBIL takes into account:

    • Revolving Debt (Credit Card)

    • Trade line (Mortgage)

  • Keep old credit cards alive since they give you a good credit history

  • Consolidate multiple cards since having multiple small credits is a bad deal for your credit score.

  • Make sure you pay every bill on time, every time. This alone accounts for 35 % of your credit score.

  • Try to keep credit utilisation at 30% or lower.

  • Keep an eye on your credit report and cry foul on discrepancies.

  • Avoid applying for new credit whenever possible. This can take away 10% of your CIBIL score upon fresh credit enquiry.

  • Make payments in full. Making the minimum payments just makes you pay the amounts of interest and gives you a bad score.

  • Trust the creditors and communicate. In times when repayment is impossible, there are chances of waivers and other mitigation.

  • Learn the Wells Fargo rule (20/10) – Don’t let your credit card debt exceed more than 20 % of your complete annual income post-taxation. And every month, don’t spend more than 10 % of your monthly in-hand income as credit card payments.

  • Make slow moves to reduce your total debt load and start with not using credit cards.

  • Remember that all your new loan application inquiries should be done within 2 weeks. A rate inquiry that closes within 30 days will not affect your score negatively.

  • Use a credit monitor that helps you keep an eye on the result of your CIBIL score as per your Credit Card usage in real time.

FAQ’S on How to Improve CIBIL Score

Who owns CIBIL?

Trans Union International Inc. owns CIBIL with its 92.1% stake.

What are the Segments for CIBIL credit reports?

A CIBIL credit report has the following segments:

  • Consumer Credit Bureau covers credit availed by individuals.
  • Commercial Credit Bureau covers credit availed by non-individuals such as proprietary concerns, etc.

Who are Members of CIBIL?

The members of CIBIL are:

  • Banks
  • Financial Institutions
  • State Financial Corporations
  • Non-Banking Financial Companies
  • Housing Finance Companies
  • Credit Card Companies are Members of CIBIL.

How does CIBIL function?

CIBIL gathers commercial and consumer credit data by accessing an applicant’s total credit record from various financial institutions.

Where does CIBIL get the information from?

CIBIL primarily gets information from its Members only at an initial stage. Later stages comprise of public domain information as well.

What is a Credit Information Report?

Credit Information Report is a factual record of a borrower’s credit history collated from the information received from various credit and lending agencies, Non-banking financial institutions and Banks.

What type of information is not included in the Credit Information Report?

A Credit Information Report does not include information like:

  • Income / Revenue details
  • Amount(s) deposited with the bank
  • Details of borrowers’ assets
  • Value of asset(s) mortgaged
  • Details of investment(s)

What is a good CIBIL score?

CIBIL score pattern ranges between 300 to 900 with 300 at the low end of the scale and 900 at the high-end, for the individual in question. Having understood the scale, you can move on to improve and maintain a good figure along this line.

Why is CIBIL score important?

For the basic, the CIBIL stands for Credit Information Bureau (India) Limited. CIBIL is a government body that was founded in 2000 to furnish three-digit credit ratings to individuals as per their history of credit repayment.

The CIBIL rating is utilised by almost every banking and credit body in India for the purpose of approving credit applications of individuals for all sorts of loans. A higher CIBIL score increases the chances of making the lenders actually give an individual/company the loan he/she has applied for.

Does checking your credit history affect your CIBIL score?

When an individual checks his or her own CIBIL score, the inquiry is referred to as a soft inquiry. Soft inquiries do not have any impact on the user’s CIBIL score. The individual can check it as many times as he or she likes. Hard inquiries, which are credit inquiries made by potential lenders, have an impact on the individual’s CIBIL score. Having too many hard queries can pull down the user’s CIBIL score, and this in turn may portray him or her as a credit hungry person. This is the reason why many financial experts insist that individuals be mindful of the number of applications they send out while seeking credit as this has a bearing on the CIBIL score.