Tips for Maintaining a Healthy CIBIL Score

New Delhi : The higher your CIBIL score, the better your chances of getting loan approvals and favourable terms. Lenders use this score to assess the risk of lending money to you. Maintaining a healthy CIBIL score is crucial, especially when applying for personal loans.

Usually, the CIBIL score for a personal loan should be 750 or more. It helps you secure loans with lower interest rates, get approved for higher loan amounts, and enjoy better repayment terms. Here are some tips to help you maintain a healthy CIBIL score.

Pay Your EMIs and Credit Card Bills on Time

Timely payments are a major factor in maintaining a good credit score. Late payments can negatively impact your score. Set reminders and notifications or automate your EMI payments to ensure you don’t miss due dates. Paying your EMIs and credit card bills on time demonstrates financial discipline and reliability.

Keep Your Credit Utilisation Low

Credit utilisation is the ratio of your credit card balance to your credit limit. It is advisable to keep your credit utilisation below 30%. High credit utilisation indicates that you rely too much on credit, which can lower your CIBIL score. Monitor your credit card usage and try to pay off balances in full each month.

Diversify Your Credit Mix

A balanced mix of secured and unsecured loans can positively impact your CIBIL score. Secured loans include home loans and auto loans, while unsecured loans include personal loans and credit cards. Having a diverse credit portfolio shows that you can handle different types of credit responsibly.

Avoid Multiple Loan Applications

Each time you apply for a loan, lenders conduct a hard inquiry on your credit report. Multiple hard inquiries within a short period can lower your CIBIL score. Instead, research and choose a lender that suits your needs before applying. Limiting the number of applications helps maintain your score.

Review Your Credit Report Regularly

Regularly checking your credit report helps you stay informed about your credit status. It also allows you to identify any errors or discrepancies that could affect your CIBIL score. You can get a free credit report once a year from credit bureaus. If you find any mistakes, report them to the bureau to get them corrected.

Maintain Older Credit Cards

The length of your credit history affects your credit score. Older credit accounts with a good repayment history positively influence your score. Avoid closing old credit cards, even if you don’t use them often. Maintaining older accounts helps build a long and positive credit history.

Avoid Settling Loans

Loan settlements can negatively impact your CIBIL score. When you settle a loan, you pay less than the full amount owed. While this might seem like a good option, it is viewed unfavourably by lenders. Aim to pay off loans in full to maintain a healthy CIBIL score.

Limit Your Credit Inquiries

Soft inquiries do not affect your CIBIL score, but hard inquiries do. Limit the number of hard inquiries by avoiding frequent applications for credit. Focus on improving your creditworthiness before applying for new credit.

Use Personal Loans Wisely

When using personal loans, ensure they are for productive purposes. Personal loans should be taken for genuine needs like medical expenses, education, or home improvements. Avoid using personal loans for discretionary spending as it can lead to unnecessary debt.

Settle Your Debts Strategically

If you have multiple debts, prioritise them based on interest rates and due dates. Paying off high-interest debts first can save you money in the long run. Additionally, creating a repayment plan can help you manage your finances better and maintain a good CIBIL score.

Keep a Healthy Debt-to-Income (DTI) Ratio

Your DTI ratio is the percentage of your income that is diverted towards repaying your EMIs, credit card bills and other debts. Lenders prefer a low DTI ratio, as it indicates better financial health. Aim to keep your debt-to-income ratio below 40% to improve your chances of loan approval.

Avoid Maxing Out Your Credit Cards

Maxing out your credit cards can harm your credit score. It shows that you are over-relying on credit which can be seen as a sign of financial distress. Use your credit cards wisely and keep your balances low to maintain a good credit score.

Use a Budgeting Tool

Using a budgeting tool can help you keep track of your finances. It allows you to monitor your income, expenses, and savings. By staying organised, you can ensure timely payments and avoid overspending, which in turn helps maintain a healthy CIBIL score.

Negotiate with Lenders

If you are facing monetary difficulties, ensure to communicate your troubles to your lenders. Many lenders usually assist and help you create a repayment plan that suits your situation. This can prevent missed payments and help you maintain your CIBIL score.

Stay Informed About Credit Policies

Credit policies and scoring models can change over time. Stay updated with the latest information to understand how these changes might affect your CIBIL score. Being informed helps you make better financial decisions.

Avoid Over-borrowing

Borrow only what you can repay comfortably. Over-borrowing can lead to financial stress and difficulties in making timely repayments. Assess your financial situation and borrowing capacity before applying for a personal loan.

Use Credit Cards Responsibly

Credit cards can be a useful financial tool if used responsibly. Make sure to pay more than the minimum due amount to reduce your balance faster. Avoid cash advances and high-interest purchases that can increase your debt.

Maintain an Emergency Fund

Having an emergency fund can prevent you from relying on credit during financial crises. An emergency fund provides a safety net and helps you manage unexpected expenses without affecting your CIBIL score.

Seek Professional Advice

If you are unsure about managing your credit, seek professional advice. Financial advisors can provide personalised guidance based on your financial situation. They can help you create a plan to improve and maintain your CIBIL score.

Maintaining a healthy CIBIL score requires discipline and financial planning. By following these tips, you can improve your creditworthiness and secure better loan terms. Remember, a good CIBIL score is not just about getting loans; it reflects your overall financial health. Take proactive steps to monitor and manage your credit, and you’ll be in a better position when applying for personal loans.