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Your CIBIL score or credit score is an important factor in determining whether you will be approved for a loan or not.
CIBIL scores are generated based on your credit history which includes past credit taken and payment patterns in relation to them. A high score represents strong creditworthiness while a low score indicates low creditworthiness. Low scores will brand you a risky borrower and lenders will be hesitant to approve your loan application.
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A CIBIL score ranges from 300-900, 300 being the lowest or bad CIBIL score and 900 being the highest. Your CIBIL score should be closer to 900 to get the best deals on interest rates for loans. A CIBIL score of 750 and above (750-900) is considered ideal by most lenders like banks and non-banking finance companies (NBFCs).
| CIBIL score range | What does it mean for your credit health? |
|---|---|
| 300-549 |
|
| 550-649 |
|
| 650-749 |
|
| 750-900 |
|
When it comes to improving your CIBIL score, certain steps can make a significant difference. If you find yourself in a situation where your credit score is in trouble and you're considering applying for a new loan or credit card, follow these measures to enhance your score. By assuming your score is not ideal, the following actions can help you improve it. Take these steps to increase your CIBIL score and boost your chances of securing credit in the future.
Checking your Credit Reports regularly is a good idea because it will tell you two things that are absolutely critical to your credit score. The first will be the loan or credit card where the defaults or delayed payments exists that have brought down your score. The second thing it will tell you is the information that is recorded in the credit report. This helps in fixing the credit score because if you notice that there is negative information, in the form of defaults or delays in payments, mentioned on the report you can always approach the bank and CIBIL to get the situation corrected.
You should dispute all errors immediately by visiting the official website, www.CIBIL.com Once you review your CIBIL report, you can determine the transaction that you disagree with or identify the error. You have to act on the disputes within 30 days and rectify the same.
Make sure that you do not use your credit card for all transactions. Try and keep your credit utilization ratio at 30% or less. When you do this, you will see a positive impact on your CIBIL score.
If you have applied for a loan or a credit card and your application has been rejected, the information will be recorded in your credit report. If you go and apply to another bank immediately then they will see your low score and the previous rejection and may reject your application. The best thing to do in such cases is to not apply again and wait for the score to improve.
One more reason why you should avoid applying for loans and credit cards too many times is that every time you apply for credit, the bank will ask CIBIL for your credit report and the inquiry will be recorded in the report. The enquiry by a bank can also cause the score to come down after each request for your report. This means that you suffer two disadvantages, the first being that you display a credit hungry behaviour and the second that your score comes down even if you have every intention and capability of paying back the loan/card on time.
If there are loans which you have been delaying the payments of then you should make it your priority to start becoming prompt with the payment. If you are struggling with the current EMI that you have to pay then you can approach your bank to help you restructure the debt to make it easier to pay.
When it comes to credit cards, the best thing to do is to not come too close to the limit of your credit cards. You should also make sure that you are not paying back only the minimum amount due on your cards, you need to pay back the entire amount or at least a sizable amount.
Many times people opt to settle a credit card or loan. What this means is that they approach the bank and ask for a deal that will allow them to close the debt for an amount that is lower than the actual amount due. While banks do, at times, entertain such requests, the settlement does reflect on the credit report and will have a negative effect on the score or a bank's willingness to offer fresh credit.
If you are applying for too many loans or are always near the limit of your credit card then your score is likely to come down since such activities display a credit hungry behaviour. The best thing to do is not to take a loan until unless absolutely necessary and make sure you don’t come close to your credit limits on the cards.
When it comes to loans there are two types of loans, secured and unsecured. If you take too many unsecured loans, banks tend to see it as a negative and might be inclined towards declining your loans. What you can do to is to take both unsecured loans like personal loans and secured loans likes car or home loans. P.S Credit cards also counts as unsecured credit.
This is a situation where you could suffer even if not at fault. In this scenario, if you are the joint applicant for a loan someone else has taken, and they have defaulted on payments then you too will lose out in your credit score as it will reflect in your report as well. The best way to avoid this is to ensure that the loans and cards are being paid for on time.
While it is true that a bad credit score can be damaging towards your future credit requirements, the situation is not completely beyond repair. The only thing you need to keep in mind is that it takes at least a few months for the scores to increase so you need to strap in for a bit of a wait before your scores start showing any improvement.
Credit, if used carefully, can be beneficial because a person who has never had any type of credit has a lower CIBIL score, making it more difficult for them to receive loans. You can improve your credit history and increase CIBIL score by taking up few loans that may include a mix of secured and personal loans, as well as long- and short-term loans. Taking and timely repaying these loans will improve your credit score tremendously.
Other Credit Bureau: How to maintain Equifax Credit History
One of the most useful features of a credit card is the convenience of paying as well as getting the security. Thanks to these two factors, we have been witnessing a massive growth of credit cards.However, even though credit cards come with the convenience of buy now pay later, you have to make sure to be particular the repayments. A bad repayment history takes a toll on your credit score in a big way. Let’s understand how is your credit score calculated:
35% - Payment History
30% - Credit Utilisation
15% - Age of Credit History
10% - Type of Credit
10% - Credit Inquiries
All the aforementioned factors affect your credit score but the payment history and credit utilisation hamper your credit score the most. Let us now understand how credit cards impact these two factors.
The chances of missing out on credit card payment are usually high and therefore you should be extra careful and remember the due dates. If you are not able to keep up with the payment due dates, it is better to come up with a simple foolproof way to avoid delay. You can either give standing instructions to your bank to pay off the bill from your savings account on a particular date. If you miss the due date or pay only the minimum due, your balance will accumulate interest. Any subsequent purchases on your credit card will also accumulate interest from the date of purchase. You also lose out on your interest-free period. Late payment of non-payment of bills hampers your credit score and brings it down.
You should first learn how credit utilisation is calculated. Majority people are not aware that the higher your credit utilisation ratio, the larger effect it has on your credit score. As per experts, you should use only 20-30% of your credit limit. If you constantly spend a high percentage of your credit limit, say 60-80%, your credit utilisation ratio takes a hit. It’s important for you to keep the ratio low as it enhances your credit score. One way to tackle high credit utilisation ratios is to use multiple cards. As you already know that the 30% of your credit score comprises your credit utilisation ratio, you should be extra careful while using your credit card and always keep an eye on the credit limit.
It must be noted that improving your credit score take time and patience and it cannot happen overnight. You have to follow certain discipline and work towards your financial goals to achieve the desired credit score.
Improving credit score depends on multiple factors and three most important among all are keeping the debt utilization ration below 30%; reviewing credit reports on a daily basis; and clearing debts in full on time.
Yes, you can increase your credit score up to 50 points which may even go up to 100 points in some cases.
It takes considerable time to improve the credit score. Improving credit score depends upon the financial activities of the individual and hence, improving trend in your personal finance can help improving credit score.
If you have a collateral to offer against the loan, then you need to have a score of at least 620 or above. For a score of 750 and above customers can avail themselves of home loans at an affordable interest rate and in some cases, the interest rates go much lower than the existing market rates.
Things you should avoid while you are trying to build a good credit score are keeping payment due or paying late; taking too much credit; canceling old or existing credit accounts; and using only one credit card.
Factors that can damage your credit score are making late payments; having high debt to credit ration; applying multiple credit at once; closing the credit account; and stopping activities related to credit for an extended period.
The biggest factor that affects your credit score is payment history. history of on-time payments is best for your credit score, while missing out on payment can affect your scores. Foreclosure, tax lien and bankruptcy can also impact your credit score negatively.
Higher credit score increases the chance to qualify for a loan more easily. Lender allows low mortgage interest rates and fees and enable users to avail themselves of reduced payment due to a high credit score.
No, paying interest for loan or on credit cards does not impact your credit score directly. But in the current economic situation of the country, the rising interest rates may impact the credit score indirectly.
If you have missed payments on any of your loans over the years, your credit score would be negatively affected. A higher utilization pattern equals to more repayments and, therefore, negatively affect your score.
More number of personal (unsecured) loans would also affect the score in a negative way since such loans have a high rate of interest compared to car or home loans and, therefore, more likely to result in defaults.
If you are in urgent need of moolah and applied for credit from several lenders, it will have a negative impact on your score since lenders will then be wary to issue a fresh loan while evaluating your creditworthiness.
A CIBIL score is a representation of your entire borrowing history. It’s a representation of a trend, which means that if you’d defaulted on a loan in the past, merely paying off a few credit card bills on time won’t raise the score drastically. You’ll need to thoroughly involve yourself in a routine of honouring payments on time, every time, taking more secured loans as compared to unsecured loans and never missing a credit card payment. The score will improve gradually, as you keep honouring your debts.
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Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.
