In today’s credit-driven economy having a good credit score is not only a luxury but also a necessity to ensure that all your expenses are taken care of. It is helpful for not just getting a loan, but even if you want to get a credit card. Your credit score is the first thing that lenders look at while offering a credit card and for a loan, your credit score determines your loan amount and other terms and conditions.
What is the CIBIL score?
A consumer’s credit score is known as a CIBIL score. It is a three-digit numeric summary of a customer’s credit history and reflection of their credit profile. The score is calculated based on their past behavior like borrowing and repayment habits. The CIBIL score ranges between 300 to 900 and a good CIBIL score close to the score is 900, higher are the chances of the customer’s credit application being approved.
Why is the CIBIL score important?
The CIBIL score determines the creditworthiness of an individual so it is extremely important. Not only does it help in getting the loan approval system easy and simple, but it also helps determine the loan tenure and interest rate at which the loan is being offered.
How to increase the CIBIL score?
There are various ways in which one can increase their CIBIL score in India, some of which are as follows.
- Make regular payments: The first important factor to ensure that you have a good CIBIL score during credit approval is making regular payments on time of the full credit amount. Irrespective of the amount of payment on loan or credit card, make sure to never default it. Then only it will show a positive impression on the lender.
- Eradicate credit balances: Only use a credit card if you can repay the credit amount by the end of the billing date. This will ensure that you do not have any unpaid dues pulling your CIBIL score down. Making all payments on time will reflect a positive impression of an individual on a lender.
- Credit utilization ratio: No matter what your credit limit is, ensure that you are not completely dependent on your credit card and do not use up the entire limit. You must maintain a credit card utilization ratio between 30-40%. Keeping monthly balances low will reflect a healthy CIBIL score.
- Check on a credit report: Your credit report is revised now and then, so make sure to keep a check on any errors or mistakes that might arise on your credit report. You should check your credit report twice a year, to rectify the errors to avoid further confusion as there might be some errors that are unnecessarily dragging down the CIBIL score. In case of any discrepancy in the credit report, raise the issue to the right agency and correct it as soon as possible.
- Avoid multiple loans and credit cards: Now and then you might get calls for loans and credit cards, but do not entertain them all. If one has multiple loans and credit cards with more than one financial institution then it will reflect a bad credit score in the future. So avoid multiple loans and the issue of credit cards to increase a credit score in India.
- Credit builder loan: If you are someone who is neither using a credit card or has a loan, then taking a small loan amount will help you in the future. A credit builder loan is a great tool to build a good credit score. The funds are deposited in the savings account and if an individual makes timely payment on the loan it adds to the credit history of an individual and represents a healthy credit score. This loan is offered at low-interest rates to an individual.
- Mix Balance between the credit: Even the kind of credit you bold adds up to your CIBIL score. One should try to maintain a balanced combination of both secured and unsecured loans which will reflect favorably on the credit score.
- Apply for a secured card: A secured credit card helps in building credit and in applying for regular credit. The lenders automatically increase the credit limit of individuals with good repayment behavior. This also eliminates the credit default risk of an individual.
- Don't open a large number of accounts at once: If you want to increase your CIBIL score, do not open a large number of accounts at. Too much credit at once reflects negatively on your credit report and it represents that an individual is more dependent on credit.
These are some points that will help you in keeping a strong CIBIL score while not compromising on your regular expenses as well. If you want to apply for a loan in the future, start working on your CIBIL score from now to ensure a smooth approval system.
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