The Credit Information Bureau (India) Limited, also known as CIBIL, is a source of credit data. Its members are Indian banks and companies that issue credit cards. These members provide CIBIL with the account information of their loan and credit card customers. The bureau creates a 3-digit numeric summary of an individual’s credit history using this data. Between 300 and 900 is the possible score. In this blog you can know that how to Improve your CIBIL Score.
Reasons for a Low CIBIL Score
There is a chance that, whether intentionally or unintentionally, you have engaged in some or all of the following bad habits if your CIBIL score is low:
Poor Payment Record
One of the most important things that determines your CIBIL score is your payment history. Your score will drop if you have historically made EMI or credit card payments late or not at all. A default on your credit report WILL have a significant detrimental effect on your credit score. It should be noted that even small amounts of unpaid debt over an extended period of time can significantly lower your credit score.
Multiple Credit Card inquiries
Applying for loans should be done with caution. Every time you apply for a loan, the lender conducts a hard inquiry, also known as pulling your credit report. If several of these hard inquiries are made within a short period of time, your credit score will be lowered, and they will be recorded on your credit report. Therefore, you should never apply for multiple debts at once because it will harm your credit score. Even if you are approved for multiple debts, it may put additional strain on your ability to repay them. If you are unable to do so on time, this will once again lower your credit score.
Errors in your CIBIL Report
Your CIBIL score may be negatively impacted by errors in your CIBIL report, such as an inaccurate mention of repayment default, inaccurate reporting of active loans and credit cards, etc. These could be mistakes made by banks or NBFCs, or they could be the result of fraudulent activity like identity theft. Ideally, you should review your credit report on a regular basis and file a CIBIL dispute to have any errors fixed as soon as possible.
Having a High Credit Utilization Ratio Regularly
The credit utilisation ratio measures how much of all available credit across all credit products has actually been used. A high credit utilisation ratio (90–100%) or a propensity to regularly max out credit cards signify a dependence on credit that could lead to a heavy repayment burden. Your CIBIL score will decrease if you consistently have a high credit utilisation ratio because you are thought to be at a high risk of defaulting.
High Exposure to Unsecured Credit
Your creditworthiness increases if you have demonstrated your ability to responsibly manage a variety of credit products in the past, such as credit cards, home loans, and personal loans. Your CIBIL, or credit score, may go down if you don’t have a healthy variety of credit products, but the effect is probably not going to be very big.
How to improve your CIBIL Score
Raise CIBIL Disputes
You must report any incorrect information to CIBIL (Credit Information Bureau Limited) for correction if you find it in your CIBIL records. Your CIBIL history will be improved, and your scores will rise as a result.
Pay Credit Card Bills on Time
Borrowers must keep in mind that they must make timely payments on all outstanding credit card balances. Their credit scores will be negatively impacted by missing due dates or making late payments. Additionally, it will demonstrate their organised approach to money management. To prevent forgetting to make credit card payments, one can set up reminders or enable auto-pay options.
Limit credit utilisation
According to past data, keeping credit utilisation at a maximum of 30% is beneficial for maintaining good credit. The best way for a cardholder to raise his or her credit score is by using the card more frequently. Cardholders can set their credit limit so that it doesn’t allow their credit utilisation to rise above 30%.
Don’t check your credit card scores often.
The idea that routinely reviewing your credit report can lower your CIBIL scores is a widespread one. This, however, only happens on occasion. Online credit report checking by a borrower counts as a soft inquiry. These credit inquiries have no impact on an individual’s CIBIL score.
The majority of the time, when cardholders apply for a new loan, hard inquiries occur. Regular hard inquiries may lower your CIBIL score. As a result, it is advised that credit card users avoid taking out loans frequently in order to reduce the number of hard inquiries. Their CIBIL score can be raised in this way.
Check Your CIBIL Report for Multiple Applications
It is required that you check your CIBIL score after each payment if you are repaying more than one debt. This will assist you in keeping track of any discrepancies that might appear in your credit report. Monitoring your CIBIL score frequently will enable you to report any errors as soon as they occur and stop your score from dropping.
Don’t close old credit cards
Another common misunderstanding is that expired credit cards will be automatically deactivated. This is not the case, though. An unexpected benefit is provided by old credit cards with no outstanding debt. Having them can significantly raise your CIBIL score. to Improve your CIBIL Score, cardholders must keep using these cards rather than closing them.
Don’t Applying for Cards or Loans if Rejected
Loan applications can be rejected when borrowers do not have enough money in their accounts. Loan rejection can also result from low CIBIL scores. Your credit scores will suffer if you consistently apply for new loans. As a result, you ought to hold off on raising your account balance or paying off outstanding loans for a while. If you still meet the requirements after that, you may reapply for a new loan.
Option for Different Types of Credits
To Improve your CIBIL Score, borrowers can diversify their credit portfolios. They need the appropriate number of secured and unsecured loans with both long and short terms to be able to do this. Due to their multiple debt obligations, borrowers must make sure they have the money available to pay back the longer-term loans once they have paid off the shorter-term ones. Before submitting an application for a new loan, borrowers must determine their current liabilities in order to maintain such a balance.
Option for a Longer Tenure When You Take a Loan
You can avoid missing payments or going into default when you choose loans with a longer term. Long-term loans can also facilitate convenient payment management because of their flexible terms. As a result, selecting a loan with a longer term can help you to Improve your CIBIL Score.
Pay Your Loan EMIs on Time
The most important requirement for borrowers to raise their CIBIL score is this one. The credit score will increase if EMI payments are made on time. On the other hand, missed or late payments can significantly lower these scores. Therefore, the sole obligation of borrowers is to continue a positive repayment habit.
How much time does it take to build your credit score?
For those who have never missed a payment and have been responsible with loan repayment, building credit can be simple. It may be difficult for people whose payments are consistently late and who lack discipline when making repayments to Improve your CIBIL Score.
In general, it can take six months to a year to restore your damaged credit score. If you take the necessary steps to raise your credit score from its current level of around 750, you may start to see results in six months and reach a higher credit score by the end of the year. The length of time needed to restore your credit, however, varies from situation to situation.
Therefore, it is advised that you take steps to raise your credit score in advance so that you have a respectable score when you actually need a credit product. It is important to note that lenders favour applicants with excellent credit scores, preferably ones above 750.
Does a poor CIBIL score mean no loan at all?
An individual with a low CIBIL score has a history of missing payments or defaulting on loans. Lenders may be reluctant to approve a loan application as a result, considering the applicant to be a high-risk borrower. To reduce the perceived risk, the lender may either reject the loan application outright or offer a loan with a higher interest rate.
A person may still be able to get a loan, even with a low CIBIL score, by giving the lender additional paperwork or collateral. For instance, they could show their ability to pay back the loan by offering proof of income, like pay stubs or bank statements. As an alternative, they could provide the loan with collateral like real estate or gold.
It’s important to remember that taking on more debt when one already has a bad credit history is not a good idea because it can lower one’s credit score and financial situation. It is critical to comprehend the cause of the low score and take action to raise it by maintaining a good credit utilisation ratio, paying bills on time, and reducing outstanding debt. An individual can increase their chances of getting loans and other credit products in the future by raising their credit score.
Can you get a personal loan with a low CIBIL score?
Yes, you can still apply for a personal loan if your CIBIL score is low. The loan could have stricter requirements and higher interest rates, though it might be more difficult to get approved for. You can approach non-traditional lenders like NBFCs and P2P platforms.
Apply with a co-applicant who has good credit, choose a secured loan where you provide collateral, apply with a co-applicant who has good credit, or raise your credit score before applying to increase your chances of getting approved for a personal loan despite having a low CIBIL score.
It’s critical to realise that taking out a loan when your CIBIL score is low may result in higher costs and risks. Therefore, it’s wise to work on raising your credit score in order to receive better loan terms and conditions in the future.