10 WAYS TO HELP YOU IMPROVE YOUR CIBIL SCORE

The CIBIL score is essential for loan approval. It informs lenders about your credibility and assists them in understanding your repayment capacity. A low CIBIL score classifies you as a risky borrower. Therefore, the financial institution will reject your loan application.

Let’s look at how to improve CIBIL score?

1. Review your credit report

You must review your credit report once or twice every year. It will give you an idea of your current financial situation and help you plan your finances accordingly. Try to immediately correct any mistakes or omissions you find in the report. It is possible that the debt you closed months ago has not been updated with the credit bureau due to an administrative error. In this case, contact your previous lender and ask them to send a loan closure report to CIBIL.

2. Increase your credit card limit

You should be aware that using more than 30% of your available credit card limit lowers your CIBIL. However, adhering to this point is not always possible. As a result, increasing your card limit is recommended. Assume that every month, regardless of how hard you try to cut your expenses, you still end up spending Rs 40,000 on a credit card with a maximum limit of Rs 100,000. 

You can ask your lender to raise the limit to Rs. 2 lakh if you have a good credit history. Here, even if you use Rs 40,000 monthly, your utilisation rate will be significantly lower than 30%.

3. Avoid cash advances on your credit card

Using your credit card for a cash advance indicates poor fund management. It impacts your credit score negatively. Furthermore, borrowing money with a credit card carries a high-interest rate, adding to the strain on your monthly budget. Thus, applying for a secured loan, such as a gold loan, is the best you can do here. It will assist you in obtaining a low-interest loan and aid in creating a debt portfolio mix of secured and unsecured loans.

4. Avoid multiple loan applications

You could find yourself in a financial crisis where your urgent need for funds prompts you to apply with several lenders. This act is a strict ‘NO’ because it indicates to the lender that you are a desperate borrower. It is best to wait for lender approval and, if rejected, ask for a reason for the rejection. Improve the flaws and wait at least six months before submitting a new application.

5. Automate payment

Managing multiple expenses at once is not always possible. You are very likely to miss important deadlines. Therefore, it is best to automate your EMI payments. Under this, the fixed amount is automatically debited from your account on the specific date of the month.

6. Create a credit history

If you have never applied for a loan, your CIBIL score will display NA. Applying for a durable consumer loan is a recommendation here. Such a type of loan is available to you even if you have no credit history. Here, look for financing a new smartphone, laptop, etc. You can build a decent credit history or CIBIL score and increase your future borrowing capacity by paying your EMIs on time.

7. Maintain a healthy credit mix

The credit mix accounts for up to 10% of your overall credit score. Maintain a well-diversified debt portfolio. Suppose, you plan to buy a car and remodel your home at the same time. Instead of using a personal loan to cover both expenses, apply for a personal loan for home renovation and a vehicle loan for a car purchase.

8. Avoid becoming co-applicant

Avoid becoming a co-applicant on anyone else’s loan application. The likelihood of default is high if the primary holder has poor creditworthiness. Moreover, in such a situation, your credibility will suffer as a result of the mistakes of others. Similarly, avoid becoming a guarantor because it has more negative consequences than the previous. If the borrower defaults, you will be accountable for any outstanding debts.

9. Choose a longer tenure

Opting for a longer repayment tenure lowers your monthly debt obligation significantly. Paying smaller EMIs makes it easier on your pocket and keeps your debt-to-income ratio under check.

10. Opt for prepayment

You may not realise it, but prepayment is crucial to improving your CIBIL. Use any windfall gains or increment towards debt repayment whenever possible. If your salary appraisal is significant, you may look to increase your EMI. In this way, you can close your loan early without incurring any prepayment penalties, reduce your interest payments, and improve your credit score.

Conclusion

The suggestions mentioned above can help you improve your credit score while boosting your loan approval chances.  

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.