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Ways To Rectify A Bad CIBIL Score

CIBIL scores play a big role in determining whether or not an individual is eligible for availing credit from a financial institution. The score ranges from 300 to 900, with 300 being the lowest and 900 the highest. A score that is below 700 does not reflect well on the individual, and if the number is below 500, the score-holder needs to take immediate measures to raise the figures as he or she would otherwise end up facing many bumps along the financial journey. A low or bad score can get the applicant termed as a ‘credit risk holder’ by financial institutions, which restricts their possibility of getting access to loans or credit cards.

The closer the CIBIL score is to 300, the more caution financial institutions will take while deciding whether or not to offer loans or credit cards. Lenders tend to have less faith in such individuals when it comes to the question of repayments being made in a timely fashion. To the lender, it shows that the borrower has excessive debt or has missed repayments in the past and therefore, is financially unstable. Should the institution decide to extend credit to such an individual, chances are that the interest rates charged will be very high. Additionally, they may require that a guarantor be listed for reducing the risk that the lender is taking in extending credit. Under any circumstance, if the borrower with the weak score is unable to repay back the money, the guarantor will be asked to cover the cost of the borrowed amount.

Steps to Rectify a Bad CIBIL Score

Now, all is not lost simply because an individual has a bad CIBIL score. There are various measures the person can take to raise his or her credit rating. Here is a look at some of the steps to rectify a bad CIBIL score:

  • Making timely payments - The most important rule any borrower, looking to raise CIBIL score and keep it intact, needs to remember is to always make timely repayments. It is the borrower’s responsibility to ensure that all the repayments on the credit that has been availed are made on time. Delays and missed payments are one of the biggest factors that drastically pull down the score. To make sure such incidents don’t take place, one can set a reminder a few days before the payment is due or send a standing instruction to the bank to make payments towards the lender by a particular date every month.
  • Utilize old credit cards - It is wrong to believe that credit card accounts which are no longer in use need to be deactivated. A lot of people are unaware of the impact that such an action has on the three-digit rating. A well-managed credit card account that has been held for a long period of time with nothing left outstanding is actually a blessing in disguise. Such cards give the much-needed boost to the individual’s credit score. The longer an individual holds on to a credit card with a positive repayment history, the better chances there are of raising the CIBIL rating.
  • Raise CIBIL dispute in case of errors - Inaccuracies, if any, in the CIBIL report can hurt one's score. To keep this from happening, it is important for every individual to regularly check the credit report for errors - at least once a year. If a discrepancy is spotted, the user needs to immediately raise a CIBIL dispute with the credit bureau. To do so, the individual should first fill out an online dispute form, which is made available on CIBIL's official website. Once the issue is mentioned and submitted, CIBIL will take it up with the concerned lending institution. An email notification will be sent to the individual regarding the status of the dispute. If the dispute is accepted, corrections will be made in the report. The total turnaround time to resolve any dispute is around 30 days.
  • Maintain 30% credit utilization - Credit utilization rate shows how much of a borrower's total available credit is currently being used. Bringing down the credit card utilization rate is known to help in boosting the credit score. When one notices that the CIBIL score is low, first check to see whether the credit utilization is high. It is advisable to keep the credit utilization below the level of 30%. Should the credit utilization be 50% or more, it can be detrimental to the score. First the individual must look to repay any credit card outstanding in full and then maintain the credit utilization below the level of 30%.

Things to Avoid to get a Good CIBIL Score

An individual can undertake various measures to keep from getting stuck with a bad CIBIL score. Here are the things to avoid so as not to end up with a bad CIBIL score:

  • Refrain from making too many credit enquiries - Every time a loan or a credit card is applied for, the financial institution will run a ‘hard’ inquiry on the credit report. When such an inquiry is made, it shows up on the report and brings down the score by a few points. Having too many of such inquiries also reflect poorly on the applicant as it shows him or her to be credit hungry. It is recommended to only apply for that loan or credit card where one is certain about getting approval.
  • Don't settle loans - Sometimes when people are unable to repay back a loan, they opt for the settlement option. What this means is that they strike a deal with the bank where the debt is closed in exchange for a sum that is lower than the actual amount due. Although this is permitted by banks at times, such settlements do not reflect well on the credit report and have a negative effect on the score as well as the any potential lender’s willingness to offer fresh credit.
  • Do not use up the entire credit - Utilizing or being too dependent on the credit card can have some dire consequences. Lenders can resort to increasing the interest rate if the credit history shows that the individual has exceeded the credit limit, which in turn negatively impacts the credit score. It is therefore recommended to limit one’s spending to 30% of the total credit limit. Doing so will not only help maintain a good score, it will also keep the individual from falling into any debt trap.

FAQs On Ways To Rectify a Bad CIBIL Score

What is a bad CIBIL score?

A score that is below 700 does not reflect well on the individual, and if the number is below 500, banks and other financial institutions can term it as poor or bad. Individuals with such scores need to take immediate measures to raise the number as they would otherwise end up facing many hurdles along the financial journey. Financial institutions tend to view such applicants as ‘credit risk holders’, which restricts their possibility of getting access to loans or credit cards.

What causes my CIBIL score to drop?

Financial discipline is essential if one wants to maintain a good CIBIL score. Without it, the three-digit number can quickly drop, reducing the individual’s chances of getting approval for any loan or credit card. Some of the reasons why an individual’s CIBIL score can go down are:

  • Failing to make loan repayments on time
  • Settling loans or credit cards
  • Using up the entire credit limit frequently
  • Sending out too much applications for credit

How do I fix a bad CIBIL score?

There are a number of measures an individual can take to fix a bad CIBIL score. They are:

  • Making timely EMI and credit card payments
  • Limiting the number of credit (hard) inquiries
  • Raise CIBIL dispute in case of errors in the credit report
  • Making use of well-managed, old credit cards

What do the scores below 750 imply?

CIBIL ScoreMeaning
300 to 550CIBIL scores within this range are considered bad. Chances of such applicants being approved a new loan or credit card are very unlikely as lenders term them as high risk.
550 to 650CIBIL scores within this range falls between the labels of poor to fairly decent. It shows that such applicants have not performed too badly on repayments. There is still a high possibility that their loan or credit card application will be turned down.
650 to 750CIBIL scores falling within this range are considered good and there is a much higher possibility that such applications will be accepted. However, since the element of risk is still there, the applicants may not get as many loan benefits as expected.
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