Banks mostly use your CIBIL score to determine whether you are creditworthy or not and hence check if you are eligible for a loan or credit card. Your credit score may have an impact on your financial obligations. The higher your credit score, the better your chances of getting a credit card or a loan. Once your loan application is approved, the amount of funds that you can borrow is again determined by your CIBIL score. Banks consider your CIBIL score as benchmark out of all the credit scores. CIBIL score determines your creditworthiness for the amount of loan that you are requesting from the bank.
CIBIL scores cannot be improved overnight. Although, there is no quick way to improve your score. You must be patient, adjust your repayment habits, and be self-disciplined to see the results and benefits. Once you obtain a good CIBIL Score, the benefits that come along with it would last a lifetime, if you maintain your CIBIL score. Likewise, there are a lot of disadvantages that come along with a poor CIBIL score. Even if you are able to improve your CIBIL score, banks look at your credit reports as a whole and search for any discrepancies. If you have ever defaulted on any of your loan repayments or any credit card repayments it would appear on your credit report and banks might then consider you as a risky applicant.
There is no fix time to improve your credit score. Of course, the lower your score, the longer it will take. However, if your score is between 650 and 700, it usually takes 4-12 months to reach 750. But if your score is less than 650, it will take longer. In order to improve your CIBIL score youn must keep your patience and adapt some methods that would help you in increasing your CIBIL score.
Here are few methods that you can use to improve your CIBIL score:
Making regular and timely credit card and loan EMI payments might help you improve your repayment history eventually increasing your overall CIBIL score. Your CIBIL score will suffer if you miss a credit card or loan EMI payment. As a result, work on improving your repayment habits if you want to improve your CIBIL score. It also helps in improving your overall repayment habits which makes you a good borrower for any type of credit. Moreover, it makes it easy for the lenders to provide you credit in future.
Maintain Old Accounts
Most people believe that closing old accounts will boost their credit score. This, however, is a misconception, and maintaining an old account should boost your CIBIL score. Older accounts are seen favourably by credit bureaus since they demonstrate a long-term relationship between the borrower and the lender or bank. This also depends on the type of relationship that you have with your existing bank. The stronger your relationship with your existing bank the easier it would be for you to maintain an old account.
Use Less Credit
The credit utilisation ratio is an important factor that banks examine when analysing your CIBIL score. Maintaining a credit utilisation rate of less than 30% of available credit limit helps in maintaining a good CIBIL score. Using lesser credit would result in lower credit card monthly repayments which would make it easier for you to timely make the repayments thus, boosting your CIBIL score. Though, it is important that you have a large credit limit. Apart from having a larger credit limit if you choose to utilize less credit it would indicate that you do not brequire much credit and would also be able to make timely repayments.
Mixture of all Credits
Combining secured and unsecured loans might result in a healthy credit mix. Secured loans however help to enhance CIBIL score because they are generally long-term loans. Similarly a home loan has a longer repayment term, demonstrating the borrower’s ability to make consistent payments over time. Credit bureaus look at the consistent repayment history therefore improving your CIBIL score.
In India, if you have a low CIBIL score, you may have difficulties in applying for a new credit card or while applying for a loan for any purpose. Almost all banks and other financial institutions run a credit check on you before extending you any form of credit. Your CIBIL score affects your creditworthiness which can make it harder for you to get your loan or credit card application approved. Existing loans, outstanding credit card bills, your repayment history, various new credit applications influence your CIBIL score along with a lot of other factors.