How to Increase CIBIL Score

CIBIL score is the parameter that decides the credibility of an individual when it comes to their creditworthiness. It plays an important role in determining whether or not your credit application will be accepted. A bad CIBIL score can prove to be an obstacle in the approval process of your credit requirement, or if a loan is approved, it might be granted at higher interest charges.

Whereas a good CIBIL score will help you in the quick processing of your credit application, and at relatively lesser interest charges.

What is a good CIBIL score?

CIBIL score tells about behavior towards the credit, which further helps in assessing whether you are a high-risk or low-risk creditor. This CIBIL score ranges from 300 to 900, where a score on and above 700 is considered to be good and below that makes you a risky creditor.

Let’s understand this better with the help of a table-

You need to know that the CIBIL score is generated by TransUnion CIBIL, which is just one credit bureau. In India, there are four such credit bureaus including CIBIL, namely Experian, Equifax, and CRIF. Credit scores generated by different bureaus might be different from one another.

What’s the importance of a good CIBIL score?

Competitive interest rates

A Good CIBIL score backs up your strong credibility, which helps you avail of loans at lower interest rates from any financial organization. It is to be noticed that even the slightest reduction in the interest rate can help with your savings ultimately.

Better Offers

By increasing your CIBIL score, you can be eligible to many other benefits provided in terms of cashback offers, travel benefits, etc. Credit card companies consider your credit score to determine your credit behavior, and with a high score, you are more likely to get a higher credit limit on your credit card.

Better Insurance Rates

An additional benefit of maintaining a good credit score can be reduced insurance premiums. An insurance company often looks at your credit score to determine the interest rates.

Grant of the higher loan amount

A good CIBIL score can get you a loan of higher amounts as well. This serves best in the need for money because of any time-sensitive situations. Your high credit score builds trust in the financial organization and in that case, you might also be eligible for pre-approved loans.

Increased loan tenures

An increased loan tenure can be beneficial for you because it lessens your burden by dividing EMIs into smaller portions. But this benefit also has a risk factor for lenders. Therefore, people with only a high CIBIL score are more likely to be allowed for increased loan tenures.

Impact of a poor Cibil score?

Higher interest rates

We have seen that a high CIBIL score can provide you loan at comparatively lower interest rates. However in the case of a lower credit score, one might face difficulty in getting competitive interest rates, as the financial institutions would not trust your credibility.

Credit Cards with a lower limit

Credit card companies' decisions are majorly based on the credit behavior of an individual. So, with a lower CIBIL score, these companies will not put their trust and in most cases might not grant the credit card. However, if granted, their credit card limit will be low, which can be a problem for you.

Higher insurance premiums

Insurance companies consider the CIBIL score to determine the insurance premiums. These companies believe that if credit card scores are lower the chances of insurance claims increase. This situation results in higher insurance premiums.

Rejection of loan application

Low credit score affects credibility and financial institutions consider this as poor credit behavior. In situations like these, there are higher chances of loan applications getting rejected for such an individual.

Factors responsible for bad credit score

Making a Late Payment

Your CIBIL score can be lowered significantly if you miss payments on the due date. The credit score calculation rewards the on-time payment. If you fail to do so, your creditworthiness will be impacted.

High Credit Utilisation Ratio

You need to focus on your Credit Utilization Ratio also known as CUR, because financial companies consider it important to determine your CIBIL score. The rule of thumb would be to maintain CUR under 30%, and not to exceed 50% of the available credit limit.

Eg., if a credit card has a limit of Rs. 1 lac, it is advisable to spend around Rs. 30,000.

Several Loan Applications

If you have applied for multiple loans within a short period, this can impact your CIBIL score badly. Financial organizations in such cases execute a serious inquiry into your credit history and believe that you are dependent on more credit.

Guarantor on Defaulted Loans

If you are a guarantor on a defaulted loan, it will hamper your CIBIL score. If the borrower fails to repay the loan amount, it will badly reflect on your credit status and affect your creditworthiness. 

Paying only the Minimum Amount Due

Individuals often pay a smaller portion of their total principal outstanding for credit card bills. This behavior is considered to be bad and in return lowers your CIBIL score. By paying the minimum amount due, you are exposed to the interest compounding on the outstanding balance.

How to increase the credit score?

On-time payments

It will become easy to increase your CIBIL score once you start to pay your bills on time. Schedule reminders and make it a habit to pay your bills in advance. You can also automate the payments directly to be deducted from your account at a fixed period.

Healthy Credit Mix

Make a good combination of your credits. It is advisable to keep a mix of secured and unsecured loans, to increase your CIBIL score. It indicates that you can manage your different types of credit effectively.

Low Credit Utilisation Ratio

Your CUR needs to be kept below 30% and this will help you to increase the CIBIL score. This can be achieved by using less credit than the total available limit. Having a higher CUR can indicate to the lenders that you over-rely on credit, adversely affecting your credit score.

Check over your credit card history

Using INDmoney is the best way to keep track of credit scores. It empowers you to track your credit score and look for any discrepancies or errors. In case you encounter any discrepancies, you must report it to the credit bureau. 

Limit credit applications

If you want to increase your CIBIL score, you should limit your credit applications. So, whenever you apply for a new credit request, these financial organizations check your credibility. Too many credit requests will impact your creditworthiness.

Check Credit Reports

You must make sure to check your credit report regularly, to make sure that there are no errors. This will help you increase your CIBIL score, by reducing the chance of calculation errors. If in case of any error identified, it can be rectified immediately.