Reasons for a Low CIBIL Score

If you have a low CIBIL score, there are chances that you might have, knowingly or unknowingly, followed some of the below-mentioned practices. To avoid any further dip in your credit score, check out these reasons and avoid using them while utilizing your existing or new credit.

1. Delayed/Non-payment of Loan EMIs or Credit Card Dues

Suggested Read: How Credit Cards Impact Your Credit Score

2. Simultaneously Applying for New Credit Applications

• Submitting multiple applications for new loans and credit cards with several lenders within a short period results in an increase in the number of hard enquiries that negatively impact your credit score
•  All of these hard enquiries get recorded on your CIBIL report and depict your credit-hungry behaviour which is potentially at a higher risk of default. As a result, your CIBIL score starts falling
• Outright rejection of your loan or credit card credit application also decreases your CIBIL score significantly

3. Not checking your CIBIL Report for Errors

• Errors in your CIBIL report, such as incorrect personal or account details, duplicate accounts, incorrect loan balance, errors in outstanding balance, errors in reported active loans/credit, etc. may adversely affect your CIBIL score
• There may be errors made by a bank or NBFC or a case of fraudulent usage such as identity theft
• Ideally, you should regularly check your credit report and raise a CIBIL dispute to rectify errors, if any, at the earliest.

4. High Credit Utilization Ratio (CUR)

• Credit Utilization Ratio (CUR) is the percentage of the total credit utilised to the total available credit limit across all credit cards.
• To avail of lending benefits and for quick loan approvals, it is ideal to maintain a CUR of 30% or less.
• If you have managed to pay all the loan EMIs and credit card dues in time, your CIBIL score may not be affected even with high CUR.
• Still, try maintaining your CUR as low as possible to further improve the chances of loan approval

5. Credit Mix

• If you have managed a variety of credit products, like credit cards, home loans, personal loans, etc. prudently in the past, it displays your ability to handle different kinds of credit responsibly
• If you don’t have a healthy mix of credit products (unsecured or secured loans), may lower your CIBIL Score slightly, but the impact is unlikely to be significant
• A good mix of credit products in your credit report may help increase your credit score.

Follow the simple tips given below to improve your CIBIL score:

Pay Credit Card Dues and Loan EMIs on Time

• Paying your EMIs and credit card dues in full and on time has a positive impact on your CIBIL score as it indicates responsible credit behaviour.
• Just keep doing this over time and you will be able to improve your score and also maintain a high score

Check your Credit Report for Errors

• Monitor your credit report frequently for administrative errors and possible fraudulent usage.
• These errors, if reported using the CIBIL dispute resolution mechanism and rectified promptly, can help improve your CIBIL score instantly

Do Not Apply for New Credit in Short Duration

• Avoid applying for new credit unless you need it.
• Keeping the number of new applications in check will prevent multiple hard enquiries from appearing on your report and help you maintain a high score

Settle Your Debts at the Earliest

• Avoid settling your debts and instead try and pay off outstanding debts in full.
• Consider settlement only as a last resort if you cannot close your credit account.
• This is because, even though a settlement will reduce your debt burden, it indicates an inability to handle your finances judiciously which will negatively impact your CIBIL score

Do not Overspend on Sanctioned Credit Limit

• Credit utilization ratio indicates the extent of your dependence on credit.
• It is recommended to maintain a low credit utilization ratio (usually 30% or lower of your total available credit limit).
• It hints at a lower dependence on credit and thus, a lower burden of repayments.
• This indicates responsible credit behaviour and has a positive impact on your CIBIL score.
• Bureaus rarely penalise you for having a high CUR once in a while.