Have a low CIBIL score? Here's what you can do to improve it

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How to improve CIBIL score
How to improve CIBIL score

New Delhi : Consider your CIBIL score like a first impression whenever you apply for a loan. Lenders check your score to measure the risk you pose of default, and while a good CIBIL score can get you quick loan approval, a low score may either lead to a rejection of your application or unfavourable loan terms. While a high CIBIL score is not the only aspect of your profile that a lender checks while reviewing your application, a high score does pave the way for quicker approval and disbursal of funds on pocket-friendly terms. ac

Your CIBIL score is assigned on the basis on your credit history, which is captured in your credit information report, also called CIBIL report. However, sometimes there may be errors in this report that can bring your score down. You can rectify this by initiating a dispute online and checking your CIBIL dispute status digitally. 

The CIBIL report lists your activity with credit going back to 3 years, and checking it is crucial to understanding what is causing your score to drop. So, the first thing to do when you aim to borrow smartly is to check your score on CIBIL. Free CIBIL Score checks are most commonly offered to you by CIBIL and lenders like Bajaj Finserv to make it easier for you to understand your creditworthiness.

Why could your CIBIL score be low?

Usually, a CIBIL score below 650 is considered a low score and this may be due to a variety of credit-related behaviours. Read on to see what they are. 

1. You have missed your EMI payments or credit card bills 

Whether it is due to financial hardship or mismanagement of deadlines, missing credit payments is a big no-no when it comes to having a good score. Consistent non-repayment of dues reflects an undisciplined attitude towards credit and lowers your CIBIL score, so ensure you don’t make it a habit. If you’re unable to pay EMIs, restructure your loan by talking to your lender and make sure you don’t apply for loans or swipe credit cards without planning repayment first. 

2. Applying for multiple credit facilities simultaneously 

View your credit card and loan applications with care and seriousness. Rather than sending off applications impulsively, check if you qualify for credit first and apply only after a study of your income and commitments. Every application you make decreases your score a little as lenders initiate a hard inquiry with CIBIL to get your score and report. Multiple enquiries from you indicate you are credit hungry, which further lowers your score. 

3. Using your credit card up to its limit often

This habit deals with credit utilisation and while this isn’t the only way it is measured, using up all the credit you have at your disposal lowers your CIBIL score. It also means that you are unable to live within your means without using credit, and this doesn’t inspire confidence in lenders when it comes to repayment of a new loan. 

4. Having high current debt 

Debt to income ratio or DTI is an important metric for lenders as it points directly to your repayment ability. If your current debt is high in comparison to your income, lenders wonder how you will be able to pay monthly instalments on time. Thus, high amounts of debt lowers your CIBIL score. 

5. Only having a history of borrowing unsecured loans

Having a good mix of credit in your history showcases that you are diligent about and experienced with credit. In cases where you have only borrowed collateral-free finance, your CIBIL score will be lower as compared to having familiarity with both secured and unsecured loans. 

6. Errors on your credit report 

Sometimes, your loan account may still be open in spite of you having made full repayment or a paid EMI may be listed as still due. You can raise an online dispute request on the CIBIL website to address such discrepancies that bring your score down. Your CIBIL dispute status is mentioned on your CIBIL report under the relevant section as ‘Under Dispute’ and this is usually addressed within 30 days, though it does depend on the financial institution addressing the dispute in a timely fashion. 

If you’re checking your report via CIBIL, free credit score checks and report downloads are only possible once a year, after which you need to subscribe to paid packages. However, it may be worth your while to do this if you want to keep an eye on your score over time and build your score before applying for big-ticket finance. 

How to improve your CIBIL score?

While it does take some time to improve your CIBIL score, these habits can help you do so systematically. 

- Pay EMIs and credit card bills on time 

- Limit your credit utilisation 

- Get a credit card with a higher limit 

- Experience a mix of credit facilities

- Correct errors on your credit report, if any 

- Reduce your current debt by paying off loans before you borrow more 

- Apply for loans only when you need them and once you check the eligibility criteria 

- Create a credit history by signing up for a credit card and a small loan if you don’t have any exposure to credit

Checking your credit score is easy with Bajaj Finserv. You can get your CIBIL score and a detailed summary with the Credit Health Report by entering just a few personal details. Doing this will give you a deeper understanding of your credit profile and give you some handy tips to manage your finances better.