Your credit score or CIBIL score shows your creditworthiness. CIBIL score, also known as CIBIL Transunion score, it is a 3-digit score that ranges between 300 and 900. A CIBIL score closer to 900, shows high creditworthiness while closer it is to 300, the chances of you getting the loan goes down. A CIBIL score of over 750 is considered good and increases your prospects of getting loan.
How to Improve Your Credit Score?
If your loan application is rejected due to low credit score or if you want to apply for a loan but have inadequate credit score, don’t worry, there are ways to improve your credit score.
But remember that your credit history can’t be improved over night, it will take time. The credit bureau keeps your credit history of past 3 years, so as the new history is added, the history older than 3 years is removed from your credit report. So, the more recent the default or delay in payment is, the more time it will take to improve your credit history.
Improving credit score or building a good credit score is not a herculean task, all you need to be is financially disciplined. So, before we proceed to know ways to improve your credit score, you first need to understand what affects your credit score.
Factors that affect your credit score
- Default or delayed in credit card or loan payment.
- Mistakes in your credit report
- Utilisation of credit limit
- Mix of credit that is higher unsecured loans.
- large number of inquiries about loan
To know in detail, Read: Factors that Affect your Credit Score. After you know what affects you credit score, you can proceed to learn ways to improve it.
What you can do to improve or build a good credit score?
1. Check for Mistake
First of all you need to ensure that your low credit score is not because of any mistake in your credit report. Mistakes in your credit report can be as small as a wrong spelling of your name or loan being credited to your account, a possibility of identity theft. So, if you find any mistake in your credit report, get it corrected as soon as possible by raising a dispute with your credit bureau.
Read More About: How to get my credit report corrected in case of an error?
2. Pay Bills on Time
The most important critical thing to do is to pay your bills on time, for improving your credit score. In fact you should make payment 5 days before the due date so that if any holiday occurs, your payment is not delayed. If you are making payment through cheque then drop it 5 days before the due date. Use ECS facility to make credit card bills and equated monthly installments (EMIs). In case of ECS also, set a payment date 5 days before the due date
3. Don’t Show Credit Hungry Behavior
Large number of credit cards or simultaneous application for loan in more than one bank shows credit hungry behavior. Availing too many loans at one point of time also shows higher loan burden and thus affect your credit score. So, avoid owning large number of credit card, if you don’t really need them.
4. Have Right Mix of Credit
There are two types of loans– secured loans and unsecured loans. Secured loans are loans such as home loan, higher the percentage of secured loans better will be your credit score. Higher percentage of unsecured loans such as personal loans and credit card debt negatively impact your credit score. Therefore, for a good credit score, you need to have a right mix of secured and unsecured loans. It is generally advised that unsecured loans shouldn’t exceed 20% of your total loan portfolio. So, avoid taking unsecured loans unless it’s really urgent.
5. Lower Your Credit Utilisation Percentage
Credit utilization means how much is your outstanding credit as a percentage of your credit limit, if it is high or increasing, it will impact your credit score negatively as it shows your rising credit burden over time. So, avoid taking unnecessary loans. Also, if you use credit cards and your credit utilization percentage is going up, it’s better that you go for second card as this will increase your credit limit and hence will bring down your utilization percentage on each card.