4 Steps to Improve Your CIBIL Score

CIBIL score plays a significant role in determining your eligibility for approval of a loan application. It is vital that you have a good CIBIL score when you opt for a personal loan.

Your credit score is the first impression of your creditworthiness. Credit rating is an assessment of your creditworthiness as a borrower. The importance of a good CIBIL score cannot be over-emphasized.

CIBIL score is a numeric figure calculated by your credit card payments and existing loan repayment history. The higher the CIBIL score, the higher are the chances of getting a loan application approved and at a lower interest rate.

A poor or bad CIBIL score is often not a good sign for a loan application. You can boost your CIBIL score by identifying the reasons behind it and finding a solution to them.

Reasons For Bad or Low CIBIL Score

1. Credit history: If you pay your credit card bills and existing loan installments on time, you may have a high CIBIL credit score. Delayed credit card and loan payment is a huge reason behind hampering your credit score. As a result, your personal loan application may not be approved.  

2. Credit card limit:  Maximizing your credit card limit means that you always have a repayment burden. If you reach your credit card limit often, it creates an adverse impact on your Credit score.

3. Adverse combination of secured and unsecured loans: It is important to have the right combination of secured loans and unsecured loans in your financial profile. If you have more secured loans, lenders consider that you do not have any asset free to keep as collateral for your new loan. While if you have more unsecured loans, your debt liability is high, and this may affect your Credit score negatively.

4. Multiple loan/credit card inquiries: Multiple loan applications or credit card inquiries give the impression that your debt burden is going to increase. It means that your repayment capacity is going to decrease in the future. Low repayment capacity lowers your Credit score.

Steps To Restore a Bad CIBIL Score

1. Reviewing and maintaining good Credit history: You should keep reviewing your credit history. If you have a bad CIBIL score due to bad credit history, you can improve it by paying your dues on time. Timely payment of credit card bills and existing loan EMIs can help in improving your Credit score to a large extent.

2. Lower credit utilization ratio: Credit utilization ratio is the proportion between your real spending and your credit limit. For improving your Credit score which is lower due to your credit card limit utilization, you should either get the credit card limit increased or lower the expenses on your credit card. Using less of your credit card can help you in restoring your CIBIL score. A low credit utilization ratio has a positive impact on your Credit score.

3. Managing Credit types: Managing a good combination of secured loans and unsecured loans in your financial profile can also help in improving your Credit score. Too many unsecured loans have a negative impact on your Credit score. You should make sure that there is a proper balance of both secured and unsecured credit.

4. Avoiding multiple loan/Credit card applications and inquiries: You should not make too many loan applications or inquire for credit cards in a short span of time. Whenever you make a loan application, your Credit score is being enquired. Too many inquiries about your Credit score affect it adversely. The same is with credit cards.  Thus, you should always apply or inquire for a loan or credit card only when you need it. Don’t write SO anywhere use synonyms like Thus, Hence, Therefore, etc

There is no fix formula for restoring your bad CIBIL score. You should review your credit report to find the reasons behind your bad Credit score.

Once you know the reason, you can find out a solution to it.  Then, all you need to do is follow the steps for restoration. It is possible to improve your Credit score in a matter of months and avail a personal loan at a lower interest rate.

About This Author

Pardeep Sharma Joined: June 17th, 2019