TransUnion Credit Information Bureau (India) Limited or CIBIL is one of the four credit bureaus in India that generates credit reports for individuals. In lay terms, your CIBIL score represents your credit history. CIBIL score is used by lending institutions to evaluate your creditworthiness before giving you their credit-based financial products.
How to read your CIBIL score?
CIBIL scores range from 300 to a maximum of 900. A score between 300 to 549 is considered risky, from 550 to 700 is considered moderate & from 701 to 900 low risk (preferable). Individuals’ score’s falling between 701 to 900 are favourably considered by lending institutions, they also get other benefits like low rate of interest, quick processing, lesser paperwork, etc.
The minimum CIBIL score for a personal loan is 700, below it could be a cause for concern. If you’re the one with a low CIBIL score, the following 10 modifications in your financial habits will surely improve your CIBIL score:
1. Repaying Your Credit Dues on Time
Paying outstanding EMI’s, credit bills, etc can help in improving your score. In case credit card bills avoid paying only the basic amount due, instead pay the whole amount. As it not only attract interest & taxes but also affects your future creditworthiness.
Thus paying dues on time helps in improving your credit score in the long run.
2. Credit Utilization Limit
Using a credit limit of less than 30% is always advisable, constantly using a limit of more than 30% for a long time certainly damage your credit score. For example, if your credit card has a max limit of Rs. 1.00 Lac constantly using a limit of more than Rs. 30,000 will have an adverse effect.
3. Opting For Different Types of Credit
It is advisable to have different types of credit in your portfolio that include a mix of personal, secured, long as well as short term loans to improve your credit history.
4. Opting for a longer tenure
Having a longer payment tenure helps in two ways 1st it reduces the EMI (monthly amount) thus making it easier to pay & 2nd creates a long clean record. As CIBIL score based upon your recent to 4-6 years of financial activity, so longer track record leads to a better score.
5. Check for Errors in your Credit Report
There could be various errors that might pull your credit score down. Imagine, you have paid your personal loan fully and closed it from your side, but it’s still appearing as due in your CIBIL report (maybe due to an administrative error). Similar errors could occur in other types of loans especially in Credits Cards, so make a habit of checking on such errors at least once in 5-6 months. If you find any, report it to the concerned organization for resolution.
6. Don’t Make Too Many Applications Within a Short Period of Time
Many people have the tendency of applying for too many loans or credit cards in a short period of time. Such practices not only adversely affect your CIBIL score but also increase the chance of future loan rejections. These enquiries reflect in your CIBIL report which will further affect your loan acquiring prospects.
7. Avoid Withdrawing Cash from ATMs
Withdrawing cash advance from your credit card is like a trap, in which a person with a little bit of cash shortage usually falls. Before such withdrawal you should know, interest starts to accrue from the day you withdraw it, unlike retail purchases where holders get 20-50 days of interest-free day’s.
Thus inflating your credit card bills amount and if there is any failure in paying it, will severely affect your CIBIL score. However, if you have taken, better pay the outstanding ASAP.
8. Don’t Exercise Debt Settlement
Sometimes when borrowers didn’t able to pay their loans or bills they tend to go for a debt settlement agreement with the lender. It will certainly cut down your debt size, but doing so will adversely affect your CIBIL score. It could even shut the doors for any fresh credit application.
9. Monitor your guaranteed accounts monthly
Legally speaking guarantor is a co-applicant without any benefit. Thus, when the original applicant defaults along with his/her CIBIL guarantor CIBIL do also get adversely affected.
10. Increase your Credit Limits
As you have observed in point 3 above higher utilization ratio adversely affect the CIBIL score, so once you increase your credit limit it will instantly lower your credit utilization ratio thus boosting your credit score. Hence, it is wiser to increase your credit limit before any additional spending. We are sure that if you utilize the above-mentioned ways, you will certainly be able to improve your CIBIL score. But one thing should be remembered that, as nothing come’s overnight likewise credit score also doesn’t improve overnight and it requires consistent effort patience.