So in this post I will be discussing about few points on how to improve CIBIL Score. You will also learn about myths that people have regarding using credit cards and CIBIL Score. I have been using credit cards for last few years and I thought of writing everything in detail so that others could also get some knowledge.
There are many people around the world who will say don’t use credit cards you will be in debt etc. If you know the right way of using it I challenge you will enjoy it become credit card freak like me anyway lets focus on how to improve Cibil score, in another post I will discuss about credit cards and its advantages.
So first of all let us know some basics.
What is CIBIL Score?
CIBIL Score is a 3-digit number ranging from 300-900. The closer your score is to 900, the stronger your credit profile.
A Credit Score plays a critical role in the loan and credit card approval process. This is the first screening criterion applied by banks and financial institutions when reviewing your loan application.
This is how Cibil score looks like when you check it with their website.
Myths and Facts
1. Cibil maintains list of defaulters only and having your name in Cibil is bad.
FACT- If you have ever taken a loan or credit card from any bank or financial institution then your information is most likely with CIBIL. So your name will be with CIBIL even if you are paying all your obligations on time. RBI has mandated banks and financial institutions to submit monthly repayment data pertaining to those customers who have taken a loan or credit card with them to a Credit Bureau. CIBIL collects and maintains these records of such individual’s payment across institutions. This data is then used by financial institutions to sanction loans and credit cards. How your CIBIL Score and Report is interpreted by respective bank or financial institution depends on their credit policy. CIBIL does not classify an individual as a defaulter.
2. If you check your Cibil score and report your credit score will go down.
FACT- Whenever your CIBIL Report is accessed by banks, it reflects as an “enquiry” on your credit report. An enquiry indicates that you are seeking new credit. However, when you check your own credit score and report directly for CIBIL this “enquiry” will not reflect in the CIBIL Report and has absolutely no impact on your credit score. It is a good practice to review your credit report periodically. Click here to get started.
3. It is better to use cash than credit card or loans.
FACT- It is always better to use credit (loan or a credit card) than cash when you have never availed any credit till date and want to build a credit history. Having a credit history enables a lender to assess your credit-repayment capabilities by determining whether you have managed your credit responsibly. Your credit history helps the bank to assess your ability to service any additional debt that you may require. If you don’t have any loan or credit card and solely rely on cash or a debit card then the bank does not have any reference to check your payment track record and will solely rely on other factors such as income and demographics to evaluate your loan application. Having a good credit history will ensure faster loan approval and disbursals, maybe even better terms.
However, it is advisable to use cash if you have a tendency to overspend on your credit card. Credit Cards charge very high interest rates. If you don’t pay your entire credit card spend each month you will be charged 24% to 36% p.a. on the unpaid balance. This causes the amount due to grow in to a large amount very quickly and any default on repayments may lead to an inability to secure
loans for other purposes (car and home purchases) in the future. Alternatively, if you have good financial discipline, credit cards help you build credit history and allow you to take advantage of reward programs such as fuel cash back, air miles and a host of other giveaways.
4. CIBIL is an organization meant ONLY to help banks and financial institutions.
FACT- The objective of CIBIL is to not only help banks and financial institutions make financially sound lending decision but also empower consumers by enabling them to become more credit disciplined which can help them with faster loan approvals and sometimes better terms on their loans. In a nutshell, we help you understand how a lender evaluates your loan application so that you can apply only when your chances of an approval are high and hence, avoid the unnecessary embarrassment of a loan rejection.
5.CIBIL has the authority to make corrections in my credit report directly.
FACT- CIBIL is not authorized to make any changes in your report directly. Any change that needs to be carried out has to be initiated/approved by the respective bank or financial institution. Only then CIBIL can make any changes to your CIBIL Report. However, CIBIL can help facilitate this process.
6.A low CIBIL Score means I will never get a loan or credit card.
FACT- There is a lender for every borrower. Having a low credit score may close doors to some banks but there are lenders who are willing to extend credit to such individuals. However, the interest rates and charges may be higher as the perceived risk associated with a low credit score is higher.
7.My assets, income, investments; all have an impact on my CIBIL Score.
FACT- Your CIBIL Report contains details pertaining only to loans and credit cards. It does not take in to account the balance in your savings or current account, investments or assets such as mutual funds, shares etc. Hence, these numbers don’t impact your CIBIL Score.
8.A bounced cheque will lead to a lower credit score of the cheque issuer.
FACT- Since your savings or current account details are not a part of the CIBIL Report, a bounced cheque does not impact your credit score. However, if you have missed an EMI or credit card payment it will have an impact on your CIBIL Score.
Read also :
4 major factors that affect your Cibil Score.
1. Payment History
Making late payments or defaulting your EMI or dues(recently or consistently ) will negatively impact your score.
2. High credit Utilisation
An increase in the current balance of your credit card indicates an increased repayment burden and may negatively affect your score.
If you have recently been sanctioned multiple loans and credit cards, then lenders will view you application with caution because this behaviour indicates your debt burden has increased, which will negatively impact your score.
4. Credit Mix
Having a balance mix between secured loans (such as auto , home loan) and unsecured loan(such as personal loan, credit card) is likely to have more positive effect on your score.
Now lets come to main and Immportant section How to improve CIBIL Score.
How to improve CIBIL Score
1. Making payments on time.
You should always make credit card payments on time because it has very high impact on your credit score. Always pay in full, don’t pay only minimum due because it keeps compounding interest and later on you might have to pay double the amount which is very high.
2. Low Credit Utilization
Always keep your percentage of credit utilisation low. Keep the utilization ratio below 30% to 40% to get the score moving up all the time. Since this also has very high impact on your credit score.
3. Dont make too many applications within short period of time.
People have tendency to apply for too many credits within shorter intervals. Not only the score falls but also the rejection mounts doing so. Ensure you maintain a reasonably higher gap between the debts to make lenders believe you are not chasing credit.
4. Review your credit history frequently throughout the year.
Monitor your CIBIL score and Report regularly to check for any inconsistencies. At times, CIBIL may make mistakes when it comes to updating your records, incorporating incorrect information against your report and delay in recording details. Sometimes a loan you may have repaid may not have been updated on the credit report, which could have a negative impact for you. If you notice such errors, get them rectified instantly.
These were important points on How to improve CIBIL Score.
Well if you are following these above steps definitely you are going to see change in your CIBIL Score , it will go high like anything gradually (this doesn’t happen overnight). Check your CIBIL Score here for free. Thank me later.
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