CIBIL Score, an ominous term that makes even the most financially aware among us squirm in our seats. Maintaining a healthy credit score is vital to our financial well-being. The first credit information company in India, the Credit Information Bureau (India) Limited (CIBIL) was established in 2000 and has since been the most popular credit agency in India. CIBIL collates all the credit information of an individual sent to the agency by banks. Using this data, they score an individual’s credit history on a range of 300 to 900, with a score above 750 being considered healthy. This CIBIL score serves as a quantitative measure of an individual’s credit worthiness and is used by banks and other lenders when one applies for a loan or credit.
So, what do you do if your CIBIL score is low? With some time and effort, you can improve your score using the methods mentioned below.
Build a credit history
A common misconception among people is that having no credit whatsoever ensures a good credit score but in reality a whopping 30% of your CIBIL score is based on your credit history alone. A credit history is of utmost importance when it comes to loan approvals or availing credit. It’s a great idea to make friends with credit and use it judiciously!
Pay your dues on time
This one is a no-brainer. Timely repayment of bills and loans ensures a healthy credit history. It is an indication that you pay your dues on time and do not default on your payments.
If you have multiple credit cards, it’s wise to not close any of them. It’s a great way to add more data to your credit history and build a positive one. That being said, keep multiple cards only if you can repay the bills on time and maintain minimum balance on these cards. Your entire credit exposure makes up 25% of your CIBIL score.
Another pointer to keep in mind is to pay your credit card bills in full. When a credit card bill is generated, the customer is usually given two options – to pay the entire amount in one go or pay a minimum amount that is decided by the bank. Though you may be tempted to opt for the second payment option, remember that the remaining amount is considered as overdue amount by CIBIL and could affect your CIBIL score.
Apply for a loan only when you absolutely need it
Hoarding up on loans isn’t going to do you any good. It only goes to show that you’re credit hungry and could reflect badly on your credit history. It’s always wise to keep the number of loan applications to a minimum as the type of loans you’ve availed and its tenures contributes to another 25% of your total score. Also remember to mix up the kind of loans you apply for. You should aim for a healthy mix of secured and unsecured loans in the form of personal loans, auto loans, home loans, etc. with fewer unsecured loans.
Another great idea is to get a secured credit card that is taken against a cash deposit such as a fixed deposit that acts as the collateral. This too is a good avenue to improve your credit score.
Overuse of available credit
Over-utilization of the entire credit limit available to you regularly is considered a red flag. It indicates that you live entirely on credit and probably even spend more than you earn which in turn could affect your CIBIL score.
Avoid impulse expenditure
An old but important rule; always think twice before splurging. Don’t just swipe your credit card to buy that cool gadget that just hit the market. Take time to think things through and plan for your expenditure.
While it is important to improve your credit score, remember that it is a slow and steady process. It would take around a year’s worth of effort on an average to see the results in your credit report. Ensuring a healthy credit history and CIBIL score can help ease your financial worries and is worth all your effort and time. Happy financial planning!