A good CIBIL score plays a crucial role in securing loans and credit approvals from financial institutions. It reflects a borrower’s creditworthiness and repayment behaviour, helping lenders assess the risk of lending. A high score increases the chances of loan approvals and better terms, while a low score can result in loan rejections or higher interest rates. It takes responsible spending habits and consistent effort to have a healthy credit score. This article discusses some vital steps to effectively enhance your CIBIL score.
Steps to Increase CIBIL Score
Below are the steps to improve your CIBIL score.
1. Pay Loan and Credit Card Bills on Time
Paying loans and credit card dues on time is the most crucial aspect of enhancing a CIBIL score. Late payments or non-payments have a negative effect on the score and could also result in fines and higher interest rates. Setting up reminders or automated payments will assist in ensuring on-time repayments. Paying dues on time regularly proves that one is financially disciplined, and that is required to ensure a high credit score.
2. Have a Low Credit Utilisation Ratio
The utilisation ratio is the portion of accessible credit that one consumes. A higher utilization ratio indicates greater use of credit and can lead to a lower credit score. It is always better to utilise credit to an extent not more than 30% of the total limit of credit. It indicates wise usage of credit and enhances the creditworthiness of lenders.
3. Avoid Application for Many Loans or Credit Cards
Multiple loan or credit card applications in a short time frame can negatively affect the CIBIL score. Each application creates a hard inquiry from the lender, which lowers the score temporarily. Multiple credit applications show a high credit dependency, and lenders perceive the borrower as a high-risk candidate. One should apply for credit only when required and keep the credit profile balanced.
4. Monitor Credit Reports and Rectify Mistakes
Monitoring the CIBIL report from time to time assists in detecting any mistakes or discrepancies that could affect the score. Inaccurate information like outdated loan information, duplicate accounts, or fraudulent transactions can reduce the credit score. If any errors are detected, you should inform the credit bureau for rectification. A clean and correct credit report helps in achieving a superior score in the long run.
5. Have a Healthy Credit Mix
A diverse credit portfolio consisting of secured and unsecured loans benefits the CIBIL score. Secured credit such as home or vehicle loans and unsecured credit such as personal loans or credit cards show the ability to handle multiple types of credit in a proper manner. Banks prefer customers who have a diversified credit history because it reflects stable finances and proper borrowing behaviour.
6. Settle Outstanding Dues and Pay Down Debt
Overdue debts and pending dues have a negative impact on the CIBIL score. Settling outstanding loans or credit card dues at an early date assists in enhancing the score. Also, lowering total debt by repaying an amount greater than the minimum due amount decreases the credit burden and enhances creditworthiness. This in turn can also boost your personal loan eligibility.
7. Avoid Settling Loans or Credit Card Dues
Payment of a loan or credit card account for less than the amount due can give short-term relief but harms the CIBIL score in the long term. Loan settlements are marked on the credit report and reflect financial stress, thus making it tough to get loans approved in the future. It is better to negotiate a reasonable repayment schedule with the lender rather than settle.
8. Use Credit Wisely and Avoid Over-Borrowing
Careful usage of credit is the key to attaining a good CIBIL score. Borrowing excessively or taking loans without paying them back creates financial pressure and reduces creditworthiness. Being sure to utilise loans and credit cards only when needed and settling them on time ensures a healthy credit history.
Conclusion
Enhancing and sustaining a good CIBIL score involves discipline, careful financial planning, and good credit management. Monitoring the credit report regularly, making timely payments, keeping a low utilisation ratio, and dealing with loans in a proper manner add strength to the credit profile. A good credit score not only raises the likelihood of getting loans approved but also provides access to advantageous terms and interest rates on loans. By doing these, borrowers can enhance their financial standing and make it easier for them to get access to credit at the right time.
