A CIBIL Score is a numerical 3-digit rating offered by the Credit Information Bureau (India). This rating, ranging between 300 and 900, reflects the credit history of an individual. Herein, a score of 750 or above is considered ideal.
A high CIBIL Score can help get a swift approval on a loan application, while also ensuring that the terms of the loan are in favour of the borrower. On the other hand, a CIBIL Score of 600 or less is considered poor and can come in the way of getting a loan. As you may have guessed, a score between 601 and 749 is considered average. Standing anywhere in this range can still warrant a loan approval, but the same may not be on favourable terms.
If you’re contemplating a big-ticket loan such as a Home Loan, or a Business Loan, having a high credit score can prove to be extremely helpful. After all, when it comes to taking a financial decision as substantial as buying a home or procuring funds to expand your business operations, you would want as few roadblocks as possible. Moreover, even a 0.5% difference in the interest rate on loan worth Rs. 25 Lakh over a period of 10 years can help you save a significant amount of money. Considering these aspects, it is clear that having a high credit score is an indispensable need for your finances.
This often gives way to the question: “Is there a guaranteed process to improve my CIBIL Score?” Fortunately, the answer is YES. In order to see your credit rating at the desired heights, you ought to take the following measures:
A good credit rating comes from a disciplined financial behaviour. Hence, if you use any Credit Cards or are servicing an existing loan, make sure to set payment reminders for the monthly bills and EMIs. Not only will this step eliminate the risk of any late fee or penalty, but will also help improve your credit score over the course of time.
As a matter of fact, you can also set automated payments for your EMI, or enrol yourself for Electronic Clearing Service (ECS) to make the process truly effortless, yet efficient.
When you’re decluttering your wallet, or organising your finances, you may feel the need to toss away your old Credit Cards which don’t serve any purpose. However, you should refrain from this practice. You must maintain your old credit cards, especially if you have managed to pay bills on time. The older is the credit card, the lengthier is your Credit History, and in turn, the better is your Credit Score.
In order to improve your credit limit, it is crucial that you maintain optimum Credit Utilisation Rate (CUR), which is nothing but the ratio of the credit you use every month to your overall credit limit. To make sure your CUR is lower than 30% every month, you can either ask your Credit Card provider to increase your credit limit or procure another Credit Card. In the case of the latter, your CUR will be calculated on the credit limit of both (or more) Credit Cards combined, helping you keep the ratio to a minimum.
An improved Credit Score is directly correlated to timely payments of EMIs. Hence, when you set out to take a loan, make sure to opt for a longer tenure. This will effectively reduce the amount you need to pay per EMI, thereby making it easier for you to pay the instalments without any delay or default.
DTI denotes the Debt-to-Income ratio, which is essentially the percentage of your monthly instalments to your net monthly income. A low DTI, preferably 40% or less indicates that you are well in control of your finances. Hence, make sure you keep your loans to the minimum possible. Doing so over a period of 6-12 months will ensure a noteworthy rise in your credit score.
It has been seen, that CIBIL reports comprise multiple mistakes, especially pertaining to updation of records, which may bring down your score. Hence, it is recommended that you order a copy of your CIBIL report and closely analyse it, at least twice every year. This way, if you find any mistakes, you’ll be able to take up the matter with the bureau through the dedicated CIBIL Dispute Resolution Form. Once the errors are rectified, your credit score will effectively improve.
To have a considerably high CIBIL Score, it is crucial to have a good mix of secured and unsecured loans in your kitty. For instance, having a Car Loan (secured) along with a Credit Card (unsecured) will prove to be in your favour. Similarly, having both long and short-term loans is considered ideal for anyone who wishes to build a good credit score.
We hope that you now have a clear understanding regarding the measures that can contribute to an improved CIBIL Score. So, don’t wait any longer before you implement these and witness the much needed growth in your creditworthiness. A high credit score will open the doors of financial freedom for you and your loved ones.
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