Looking to rebuild your CIBIL score? While it may not happen overnight –as working to improve your CIBIL score is not always simple – with some time, effort and financial discipline it is indeed not beyond your reach. If you liken credit health to physical fitness, just as you cannot get fit in a quick-fix manner, similarly you cannot achieve good credit health without some dedication and commitment over a period of time. Like they say, there are no free lunches.
A CIBIL score gains significant importance as every lender prior to approving a loan or credit card application, makes it a point to obtain a copy of your credit report and goes through it at length. The credit score, an integral three-digit numeric representation of the report is the first piece of information that the lender checks. This helps you get a line of credit at the most competitive interest rates and other terms, and therefore being credit healthy is very important.
What is a CIBIL score?
CIBIL being India’s oldest credit bureau has resulted in credit scores often being known as CIBIL scores colloquially. There are now three more bureaus in India, namely Equifax, Experian and CRIF High Mark. Essentially, all four bureaus offer a similar product and while the individual scores may vary, the logic behind them is uniform. You can therefore avail of a score from any or all of these bureaus, at a nominal cost.
Why is a credit score important?
Any credit solution that you wish to avail of, be it a loan or credit card, requires your credit score to be healthy or ‘good’. This is because a lender uses this information to determine the possibility of a loan going ‘bad’, i.e. whether the borrower is likely to default on the loan payment.
With a high score (typically considered to be 750+ by most lenders) the likelihood of your loan application being approved increase. Further, you would also be given preferential pricing, which means that better interest rates translate into more saving in the long run.
How to improve credit score
In order to enhance credit score, below are a few tips you should follow:
Make timely payments – When you have a loan EMI or a credit card bill due; ensure that you make payments in a timely manner. Remember any skipped payments or even delayed payments can immediately have an adverse impact on your score. When you pay in time, a lender tends to look at your application more favorably, as it is evident that a customer who is diligent about payment is less likely to default even on new credit.
Set up payment reminders or alerts, or avail of options such as ECS mandate or standing instructions to your account to ensure your payments are always on track.
Credit limit utilization – It is not a good idea to max out on your card limit, or possibly even come close to it. The ideal usage is 30 percent, which indicates that the person is likely to be financially solvent and can handle debt well. If you use a higher credit limit regularly it could serve as a red flag to a lender, indicating that you rely on debt to even meet daily expenses.
Healthy credit mix – From a lender’s perspective, leaning towards a particular type of loan product can indicate dependency on credit. For example, too many unsecured loans such as credit card and personal loans can go against you and bring down your score. Bring into the mix secured (or collateral backed) loan products such as home loans or auto loans as well.
Don’t apply for too many cards – Unless you do need a new card, avoid applying for too many. Each time you do, an enquiry or a ‘hit’ is made against your credit report, which can bring down your score. Further, using too many cards simultaneously can lead you to spiral downwards into a debt trap, as dependency on credit increases.
What should be your first step?
Call for a copy of your credit report and understand where there is scope for improvement. Put together a plan wherein your budget your spends wisely.
If in spite of your best efforts you are unable to maintain a good score and no viable credit solution is in sight, consider getting in touch with a credit health management company such as Credit Sudhaar. With the guidance of trained credit counsellors, you can work towards rebuilding your score and ultimately enhancing it.
Even if the road to improving your score looks tough, keep in mind that a good score can open most financial doors for you and hence getting credit healthy cannot be ignored, even the time taken is longer than you anticipated.