A high CIBIL score is what every individual dream of, but what is it? How do you improve your CIBIL score? What is a good CIBIL Score? This article explains what exactly is a CIBIL score, how to improve CIBIL Score, and why to rely on CIBIL Score
What is a CIBIL Score?
CIBIL stands for Credit Information Bureau of India Limited, and it is a credit rating agency that rates people on how risky they are as borrowers. It helps banks with financial decisions by providing them with information about your creditworthiness.
A credit score is a three-digit value that suggests an individual's creditworthiness. It plays a key role for lenders to decide their potential borrowers. To qualify for loans, an individual must have a good credit score.
CIBIL score is an important number to have as it gives you an idea of whether you can qualify for a loan or not, be eligible for certain benefits, or even find a job.
CIBIL collects data from banks and non-banking financial companies (NBFCs) to create a report on your financial history. The Reserve Bank of India has mandated that all banks should check the CIBIL score of every loan or credit card applicant at the time of evaluation CIBIL score is calculated by various factors including payment track record, outstanding dues, number of loans availed, and the credit history of the borrower.
The importance of CIBIL score is now becoming more than ever before as it forms a very crucial part of your credit report, which is used by banks/lenders to decide whether you are worthy of a loan or not.
But there are some steps you can take now to start on the path to better credit.
How To Improve CIBIL Score?
Now you know what is CIBIL Score and why it's important for you to have a high CIBIL Score. If your CIBIL score is not good enough then these are the things that you can do to help it improve.
1. Set Reminders & Pay your Bills on Time
Repayment of your outstanding debt is the most important thing to do. This is because more than 60% of your CIBIL score is made up of your repayment history.
So, you need to maintain discipline when it comes to paying your bills on time. This will also help you in reducing the number of late payments and defaults. If you delay your outstanding dues, this will affect your credit score, and it will go down.
2. Keep Credit Card Usage Under Control
Banks offer credit cards for various reasons, such as to make you spend more than your budget so that you fail to repay the full amount and convert it into EMIs, and then they can earn interest on it.
Whereas those who pay their dues on time are offered higher limits and spend more than their budget, it excites people when their limit increases, and so does their spending limit.
This ultimately results in failing the dues, so maintaining a high credit score ensures your credit card usage is under control.
3. Opt for a longer tenure
When taking a loan, the repayment period is important. Opt for a long tenure to repay the money. You will have to pay low EMI so that you will be able to pay off the loan on time. You should keep yourself away from the defaulter's list, which will help you improve your CIBIL Score.
4. Always Watch Your Credit Utilization Ratio
Don't use your credit card for every purchase, always maintain a low credit utilization ratio. It must not exceed above 30%. For example, if your total credit limit is Rs. 100,000, your total revolving balance shouldn't exceed Rs. 30,000.
5. Avoid Multiple Loans in a short span of time
If you have too many credit enquiries, your CIBIL score will go down because more than 3 credit enquiries in a small span of time can affect your score. This indicates that you are hungry for taking loans, thus it will affect your CIBIL Score.
6. Close Down Unnecessary Credit Cards
You might have been using several cards for every kind of purchase, but not all these cards need to be used at all times. The lesser cards you have, the good credit score you have.
7. Check your CIBIL report regularly
You should check your CIBIL report regularly. If you find any errors, it's very crucial to rectify them immediately.
Importance of a CIBIL Score
CIBIL scores play a very crucial role when it comes to your creditworthiness. A good CIBIL Score has many benefits, a few of them are:
- Cards with better benefits and rewards
- Get higher credit card limits
- Easy approval on loan applications
- Loans with longer term
- Get pre-approved loans
- Negotiation power for Interest rates
- Pay low loan processing fees and other charges
So, you should always try to maintain a high CIBIL Score. If your CIBIL Score is low, you can try and improve it by paying off your dues on time and spending within your budget. So, avoid taking multiple loans at the same time, reduce your credit card usage and be conscious of the number of credit enquiries done on you. Follow all the measures mentioned above and keep your CIBIL Score higher.
Frequently Asked Questions on CIBIL Score
You can always do these things to improve your score quickly:
- Don't carry out too many credit enquiries.
- Reduce your outstanding dues as much as possible.
- Opt for the correct tenure to repay your loan.
Here are effective Ways to Increase CIBIL score to 800:
- Get Secured Credit Cards
- Increase the Age of your credit history
- Stay within 30% Credit Limit
- Keep your Credit Cards Active
- Don't carry out too many credit enquiries
- Keep an eye on your Credit Utilization Ratio
A CIBIL score of 750 or above is considered good and is enough to get a loan from a bank.
This might be due to the following reasons:
- You have been taking a lot of loans and your credit utilization is too high.
- You haven't paid off your dues on time, so it decreases your score.
- More than 3 credit enquiries in a small span of time will also lower your score.