At present, thousands of Indians are suffering from bad credit score and due to lack of awareness they are unable to improve it. People who are new to credit must understand that credit score is considered to be the backbone of their financial health. Layman must have heard a lot about CIBIL score but is not actually aware of its meaning and significance.
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Bad credit score can bring financial loss to an individual. People with good credit score should also remain cautious by checking their credit reports periodically, as sometimes due to some misinformation provided to credit bureau, their credit score can fall. Therefore, let’s understand firstly about CIBIL and afterward about CIBIL score and ways to improve it, so that there is no difficulty faced by customers in availing credit.
CIBIL, now known as TransUnion CIBIL (Credit Information Bureau (India) Limited) is a credit rating company that collates, manages and generates credit scores for the customers worldwide. Founded in 2000, TransUnion CIBIL works with 2,400 members that include financial institutions, NBFCs, banks and housing finance companies. TransUnion CIBIL being a credit bureau maintains credit records of more than 550 million customers and businesses.
A credit score is a 3-digit numerical representation that signifies the creditworthiness and repayment capability of an individual. Generally, a credit score ranges between 300-900, wherein any score close to 900 is considered good by financial institutions and NBFCs (Non-Banking Financial Companies). TransUnion CIBIL states that “79% of loans or credit cards are approved for individuals with a CIBIL Score greater than 750”. Any score below 750 is not regarded good by lenders, due to which customers face difficulty in getting loan or credit card sanctioned under their own name.
9 Ways to build up your CIBIL score:
1. Avoid late payments
Any type of repayment related to loan or credit card EMIs should not get delayed, as it directly impacts your CIBIL score negatively. People can avoid late payment by aligning payments to auto-pay mode, setting up reminders and making monthly task sheet.
2. Review your CIBIL report regularly
This is the most important factor that influences the credit score. One can check his/her credit report for inaccuracies or misinformation shown in the credit report. If in case there is any discrepancy in the name or changed address has not been updated then one can raise dispute and get the issue(s) resolved. This practice helps in the improvement of your CIBIL score.
3. Maintain Credit Utilization Ratio
Person availing credit should maintain his/her credit utilization ratio below 30% of the total available credit limit. This mark can be achieved by balancing the burden of expenditure from one to multiple credit products. By lowering your credit utilization ratio, you will be building and maintaining your credit score which will eventually benefit you and make you even more financially secure.
4. Manage a credit mix
Unsecured loans including personal loan, business loan, education loan are generally considered as a foremost reason of reduced credit score. As these loans are sanctioned without any collateral, so the risk involved is much more as compared to secured loans, such as home loan or auto loan. To maintain a decent credit score, one should always opt for mix of credit as due to which the risk factor balances in return providing better credit score. Healthy mix of credit does not put banks in trouble, as by doing so an applicant will not be considered as a high risk borrower.
5. Avoid multiple or frequent enquiries
Do not apply for multiple credits simultaneously, as this displays your credit hungry behaviour to the lenders. Every time there will be a credit enquiry when a loan application is submitted. Frequent loan application sends a negative impact to lending institutions about the applicant and the chances of loan rejection increases. Therefore, apply for fresh credit only when you need it.
6. Do not exhaust available credit limit
Avoid using your credit limit to the maximum, as due to this your credit utilization ratio increases which in turn lowers your CIBIL score. However, if the expenses are burdening the existing credit line, so one can request bank for the increase of the credit limit.
7. Do not close old accounts
Closing your old accounts or credit cards is never a wise decision as it depicts your long association with the banking institution and shows your long repayment history with the same. Closing old credit cards or accounts nullifies your previous record with the bank, thus impacts your credit score negatively.
8. Monitor your co-signed loans
It is important to keep a check on any loan that you have co-signed. Sometimes the borrower, due to some financial emergencies is unable to repay the loan amount which you are unaware of. Due to missed or delayed payments the only thing that gets impacted is your credit score. Therefore, its recommended to keep a track of loan(s) that you have already co-signed.
9. Avail at least one credit product
Individuals with no credit history also face difficulty in getting loans sanctioned under their own name. Even if they get their loan sanctioned, still the interest rates offered will be on higher side, as compared to deals available for people with credit history. So, availing at least one credit line like credit card could be a viable option in maintaining credit history and making your credit score rise to 750 and further close to 900.
Any score above 750 is considered good enough by most of the lenders. To avail lending products at lesser interest rates, these measures should be thoroughly considered before applying for a loan or credit card. If these simple steps are followed, then one may observe a gradual increase in his/her credit score.