How To Improve Your CIBIL Score: 11 Smart Tips

A good CIBIL or credit score is one of the main prerequisites for loan approvals. If your CIBIL score is more than 750, the lender would approve the loan. However, delayed repayment of the existing loan, multiple loans and high credit usage could lower your CIBIL score. If you want to get a loan approved without major hiccups, you need to improve your CIBIL score.

This post tells you 11 smart ways to increase your CIBIL score immediately, how it is calculated and why it is important. Read on!

What is a CIBIL Score?

Credit score, or CIBIL score as it is popularly called, ranges from 300 to 900. It measures your creditworthiness. A score is allotted to the borrower which helps the lender understand if a loan should be approved. It assures the lender of your loan repayment credibility. To avail of a loan, you need a credit score of 650+.

11 Ways to Improve Low CIBIL Score

1. Repay Your Loans On Time

The first and the most important way to maintain a high CIBIL score is to pay off your credit dues on time, every time. If you have a loan in your name, pay the EMIs within the due date without any default. Similarly, if you own and use credit cards, pay off their bills, fully, within the due date without fail. If your repayment history is clean, you would be able to improve your credit CIBIL score. 

Also read: How to plan your personal loan repayment: Different loan repayment options

2. Keep Your Credit Utilisation Ratio Low

Credit utilisation means the credit that you have used against the credit allowed. You are allowed a credit limit by the lender when you avail a credit card or take a loan. Against the allowed limit, the amount of credit that you actually use determines your credit utilisation ratio. Here’s how the calculation of the credit utilisation ratio is done:

Credit Utilisation Ratio = (Credit used / Credit allowed) * 100

A high ratio is bad for your credit score because it depicts a higher dependency on credit. So, try and keep your credit utilisation ratio low so that your CIBIL score improves.

3. Have A Healthy Mix Of Credit Products In Your Portfolio

Have a mix of unsecured loans and secured loans. Personal loans and credit card debt are unsecured loans. On the other hand, car loans, home loans, education loans, etc. are secured loans. If you favour either type of loan, your credit portfolio would be concentrated and your credit mix would be affected. So, try and opt for a mix of secured and unsecured loans in your portfolio so that you can have a healthy credit mix.

4. Do Not Close Old Credit Cards

Old credit cards reflect on your credit history. Keeping a record of your loan or credit behaviour is important. Your old credit card has a high chance of having a good credit score, which will help you get loans easily. 

5. Pay Your Utility Bills On Time

Besides credit dues, payment of your utility bills also impacts your credit score. Defaulting on your utility payments has a negative impact on your credit score and so you should pay off your utility bills on time to improve your CIBIL score.

6. Do Not Make Multiple Loan Applications

Every time you apply for a loan, a hard enquiry is made into your credit score by the lender. Too many hard enquiries, within a short period of time, negatively impact your credit score. So, if you want a loan, check the different options and make one application. For subsequent loans, wait for some time before applying so that too many enquiries into your credit report are not done.

7. Have A Credit History

To have a credit score you need a credit history. So, have one or the other form of credit in your name so that you have a credit history based on which the credit score can be calculated.

8. Avoid Joint Loan Applications

Joint loan applications can be bad for your credit score. When you are a joint applicant, your score is intertwined with the score of the other applicant. If the other applicant makes a default in payment of the loan, your credit score would also suffer. So, try and avoid joint loan applications and if you make a joint application, ensure that the loan is repaid on time.

9. Check Your Credit Score Regularly

You should check your credit score regularly so that you can apply for CIBIL correction if needed. When you check your score, it is called a soft inquiry and it does not affect your credit score. So, keeping track of the score is important so that you can improve it if needed.

10. Get Errors Rectified

Usually, your credit report is prepared with utmost care but in some cases, there might be wrongful entries in the report which have a negative impact on your score. So, when you keep a check on your credit report, you can weed out errors. If there is an error, you can get it rectified so that your credit score is not hampered.

11. Don’t Keep Your Lenders In The Dark

Life is unpredictable and even the best of us can fall on hard times or have emergency situations to deal with. If you’ve got EMI dates looming and anticipate difficulty in making a payment, set up a meeting with your lender. Explain your situation and restate your commitment. Lenders may offer you leeway or an interim solution that doesn’t impact your CIBIL score.

Also Read: How To Get Personal Loan With Low CIBIL Score or Without CIBIL Score?

How is Your CIBIL Score Calculated?

Your credit score is calculated by authorized credit bureaus like TransUnion CIBIL, Experian, Equifax, etc. Moreover, there are online websites and mobile apps, where you can enter your details and your credit score will be displayed. Your credit score is calculated using the following factors:

• Your credit history
• The history of repayment of your past and present loans and credit cards
• The types of credit you have availed to date
• Your credit usage
• Enquiries on your credit score

Also Read: CIBIL Score Calculator And How To Check CIBIL Score Online

What is a Good CIBIL Score?

A good CIBIL or credit score is considered to be above 750. This shows lenders that you are trustworthy and are capable of repaying the loan on time. A good CIBIL score also increases the possibility of getting loan approvals quickly and at a lower interest rate. Even to get a personal loan, the minimum CIBIL score is between 720-750. 

Having a good credit score is always recommended because a good score gives you many benefits. These benefits include the following –

• Easy approval of your loan application
• Wide choice of loan deals
• Access to a higher quantum of loan
• Possibility of availing of low-interest rates
• Scope of negotiating the interest rate with the lender to fix the most reasonable rate
• No restricting terms and conditions on availing of the loan
• Instant loan sanctions

Reasons for Low CIBIL Score

Many reasons could affect your CIBIL score:

• Late Payment: The most common reason for a low CIBIL score is the late payment of loan dues. Delayed payment, even by a day, could lower your credit score. It signals the lenders that you are unable to pay your dues on time. As a result, your credit score can take a hit. 
• Multiple Loan Applications: If you have applied for multiple loans in a short period of time, it can lower your credit score. While your need for money could have a genuine reason, taking small loans from multiple lenders makes the lenders doubtful whether you will be able to repay so many loans on time. 
• High Usage of Credit Limit: If you tend to use more than 50% of the credit limit set by your lender, your credit score will plummet. The credit limit is set considering your income and it sets a limit on your expenditure. Using more than 50% of your credit limit could signal your financial irresponsibility, resulting in a low CIBIL score.

Final Word

Try to maintain a high credit score so you get the loans approved quickly. Keep a tab on your CIBIL score so that you can take corrective measures when the score reduces. Calculate your credit score online and check it every six months. If your CIBIL score is low, use the 11 ways to improve your CIBIL score and get your loan approved.

FAQs On How To Improve CIBIL Score

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