When you apply for a loan, it is a mandatory process to obtain your CIBIL score before any lender sanctions loan to you. But do you know how to improve CIBIL score if it is low?
CIBIL score ranges from 300 to 900. Any score above 750 is considered as a good score. Having a good credit score means that you are likely to service your loans without delays and defaults. Credit scores below 750 are usually considered as low CIBIL score by banks and other lenders. Lenders usually hesitate to extend loans or credit cards to such people as they are perceived to be at high risk of default.
If you find yourself with a poor or lower range of CIBIL score, all is not lost. You still stand a chance to improve CIBIL score with some corrective measures. Let us see what important steps you can take immediately that would help you to increase your CIBIL score.
1. Clear your Credit Card outstanding balance in full
If possible, clear all the outstanding balances on all your credit cards. Unpaid outstanding credit card balance over a period of time not only increases your interest outgo but also decreases your credit score considerably.
2. Never utilize more than 30% of your credit limit
If you always make high utilization of the credit limit of your credit card, it is an indication that you are most likely spending more than your income. Preferably take higher credit limit and never spend more than 30% of your credit limit.
3. Never surrender your old credit cards
Yes! Don’t surrender your old credit card even if its features are no more enticing. A credit card account maintained over a long time with a good repayment track gives a big boost to your credit score.
4. Obtain a secured credit card
If you have a bad CIBIL score or if you are a student/housewife, obtain a secured credit card by making a nominal fixed deposit against it. Make timely payments to this card to boost your credit score.
5. Avoid taking micro credit
These days it is very easy to obtain loans for amounts as small as Rs.5000 through micro-credit lenders. However, interest rates are very high.
If you frequently borrow from microcredit lenders, it indicates a poor financial state which can impact your credit score.
6. Accept any offers to enhance the credit limit of your credit card
If your bank offers to increase your credit limit on its own, accept it because it indicates that the bank has increased confidence in you. But do not increase the spend on your credit card.
Having a higher credit limit with lower spending means that your credit utilization percentage will also reduce.
7. Opt for a loan only after checking your cash flows.
If you plan to avail a loan, first check if you have cash surplus at the end of every month to make timely repayment.
If (Income – Expenses) is positive, you have surplus cash. Take a loan with a suitable tenure, so that the EMIs are less than your cash surplus and make timely payments.
If (Income – Expenses) is negative, avoid taking any type of loan!
8. Avoid applying for fresh credit frequently
If your loan application gets rejected by any lender due to poor credit score, avoid applying for with other lenders immediately. Or if you are looking for a loan, don’t apply simultaneously with many lenders.
Frequent requests to CIBIL for credit score leave a negative impact on the credit score.
9. Raise dispute with CIBIL immediately if you find any inaccuracies
If you notice any errors in your CIBIL report about loan closures or repayments made, raise a dispute with the lender immediately.
10. Never be a loan guarantor
Avoid becoming a guarantor to loans for others except for that of your spouse and children. If the person who has taken the loan is unable to clear it, you will be forced to clear the loan, and also it is marked as your borrowing.
11. Avail a mix of secured and unsecured loans
For better credit score, try to avail both secured loans such as home loans and unsecured loans such as personal loans or credit card loans. Making timely repayments to both will increase the lenders’ confidence in you that you are not a likely defaulter.
12. Monitor your co-owned and joint accounts
If you have taken a joint loan and if your co-applicant is also paying EMIs, ensure that they make timely repayments.
If you have a joint savings account, ensure that minimum average balance as specified by the bank is always maintained.
You can improve your CIBIL score significantly by implementing the steps mentioned above. But please don’t expect it to improve overnight as it takes a few years for the impact to be visible.
A good CIBIL score is an indication of your financial health. With a good CIBIL score, you can bargain for lower interest rates on loans, and also get the best deals and offers on credit cards. Nowadays, it is one of the background checks conducted by employers when hiring for senior positions to ensure that a prospective employee is not tempted to do financial misappropriation or fraud.
A low credit score can be improved upon only when you take the right measures. Please remember that these measures are to be taken throughout your life and not just for a few years until you improve your score.
Contact Us to help you get out of debt trap and improve your CIBIL score