CIBIL Score: Steps You Should Take to Maintain a High CIBIL Score

A CIBIL score acts as a deciding factor for banks and non-banking finance companies (NBFC) at the time of approving a loan or a credit card application. In addition to banks and NBFC, you may also need a CIBIL score at the time of applying for a visa. The high CIBIL score determines your ability to repay dues. Let’s learn more about the CIBIL score and what are the factors that can affect your CIBIL score.

What is a CIBIL Score?

A CIBIL score is a numerical representation of your creditworthiness. It is a number between 300-900, 900 being the highest, that represents the creditworthiness of an individual. It is offered by TransUnion CIBIL, which is the oldest credit bureau in India that is regulated by the Reserve Bank of India (RBI). Credit bureaus compute the CIBIL score after considering your credit history and repayment behavior. The high CIBIL score better the chances are for you to get low-interest rate credit cards, approval for higher credit limits, quick loan approvals, home loans, and car loans. Hence, maintaining a healthy high CIBIL score is of utmost importance. You can also check your CIBIL score for free.

5 Important Factors that affect your high CIBIL score

  • Repayment history: Repayment history is one of the key factors that decide your CIBIL score. It accounts for 35% of your total credit score. Therefore, it is extremely important to pay all your bills on time and show responsible payment behavior. You should never default on your bill payments as it will have a negative effect on your credit score.
  • Amount of debt: The amount of debt you carry accounts for 30% of the total credit score. Make sure to clear all the debts and loans as even a single default on your payment can have a negative impact on your CIBIL score. It is important that you should be aware of your current status of wealth. Also, it is advisable to take only that amount of credit that you can repay. Always maintain a low credit utilization ratio which means, use 30% or less of your credit limit. Focus on minimizing your debt as it will help in increasing your CIBIL score.
  • Age of the credit history: The age of your credit history accounts for 15% of your total CIBIL score. The age of credit history is the number of years that have passed since you opened your first credit account. You should have a decent credit history as it suggests that you have a lot of experience in handling credit.
  • Type of debt: There are two types of debts – secured and unsecured. A mix of secured and unsecured debt helps you boost your credit score. This essentially means it is good to have a car or home loan as well as a credit card. Having a mixed type of credit shows that you can handle different types of loans. The type of debt accounts for 10% of your total credit score.
  • Credit inquiries: The number of applications an individual makes to avail credit is reflected on the CIBIL score. Each time you inquire about a loan or credit card, a hard inquiry is placed on your credit report. Credit inquiries account for 10% of your total credit score.

7 Best Ways to Improve your CIBIL Score

  1. Check and monitor your CIBIL score and report: Make it a habit to check your CIBIL score regularly, as it gives you an idea about your financial health as well as credit status. As per a mandate by the RBI, all the credit bureaus in the country (including CIBIL) are required to offer one free credit report to individuals in one calendar year. Another reason to check your CIBIL score is to see whether there are any errors or false records about your credit account. If you spot any errors in your CIBIL report, you can raise a dispute with the bureau and get it resolved.
  2. Get a credit card if you don’t have one: It is not necessary for you to have multiple credit cards, but you can have one or two credit cards, having a credit card helps you in building a credit history and thereby builds your credit score. As you are new to using a credit card, make sure to use it only when you know that you are in a position to repay it without any hassle.
  3. Don’t remove old accounts: It is advisable to remove or deactivate old accounts or accounts with a negative history. Also, removing old debts from the report after paying them off affects your CIBIL score negatively. Getting old accounts removed may harm your CIBIL score a lot as they may have good records of repayment history. In order to maintain a good CIBIL score, it is better to keep all the records of paid debts.
  4. Always make full payments: One of the key ways to maintain a good CIBIL score is to get into the habit of paying the entire bill amount. Paying the minimum amount due on your bills reflects badly on your CIBIL score. Such kind of payment behavior suggests that you are struggling to repay your credit debts. Also, if you keep paying the minimum amount due on your bills, you might end up paying a huge amount in interest fees.
  5. Make bill payments on time: It is extremely important to pay your bills on time as it is one of the biggest factors that affects your CIBIL score. Make sure to pay your credit card bills and home loan EMIs on time. There are several simple ways that will help you pay your bills on time. For example, you can give standing instructions to your bank to pay off your credit card bill automatically before the due date.
  6. Avoid hard credit checks: Don’t apply for a loan or a credit card application immediately, if it gets rejected in the first attempt. A credit application or request attracts a hard credit report check by financial institutions and banks. Every time a hard credit check is carried out, it reduces your CIBIL score.
  7. Low credit utilization ratio: A low credit utilization ratio essentially means that the utilization amount should be lower than the credit limit of your card. A high credit utilization ratio has a negative impact on your credit score. According to experts, you should avoid using more than 30%-40% of your credit card limit. A higher credit utilization ratio suggests you are overusing your money and will not be able to pay back the balance amount.
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