Your CIBIL score is a reflection of your financial health. One glance at your credit score tells your lenders how responsible you are with your credit. The higher the CIBIL score, the better are your chances of getting approved for new loans and credit lines. A higher score also increases your chances of getting the loan at the lowest available interest rates.
Importance of a Good CIBIL Score
CIBIL score plays a crucial role in your financial journey. It has the power to affect the following factors:
Loan approval: A CIBIL score indicates your creditworthiness. A good score increases your chances of getting a loan approved.
Approval for higher limits: A high CIBIL score makes you a low-risk borrower. This means the banks and financial institutions will trust you with higher loan amounts.
Interest rates: If you have a good CIBIL score, you have a higher chance of getting the best interest rate on your credit cards and loans.
There are other benefits of having a good CIBIL score, including:
- Pre-approved loan offers
- Loans with longer tenure
- Discount on processing fees and other charges
- Quicker approvals on credit applications
- Better negotiation power
If your CIBIL score isn’t where it’s supposed to be, you need to work towards improving it.
How can I improve my Credit Score?
1. Ensure your credit report is accurate
In some cases, your credit report may contain inaccurate information. This can have a harmful impact on your credit score. Therefore, your first step should be ensuring that the information reflecting on your CIBIL credit report is correct. If you find inaccurate information, raise a dispute with CIBIL and also with the bank/lender associated with the incorrect information.
2. Set up payment reminders
If there’s one thing you could do to improve your CIBIL score that would be paying your bills on time, every time. Being late on your payments is one of the credit mistakes you should avoid because a single late payment can cause a considerable drop in your CIBIL score. Moreover, a late payment stays on your credit report for at least seven years.
This means you should do all it takes to make payments on time. One of the effective ways of ensuring discipline when it comes to paying EMIs is setting payment reminders. You can go a step ahead and set up automatic payment transfers from your bank account to your loan account.
3. Lower your credit utilisation ratio
Credit utilisation is the amount of debt outstanding on your credit cards or lines of credit. It is recommended to use less than 30% of your credit limit. You can control your credit utilisation by:
- Try to pay your credit card balances in full each month
- If you have too many credit cards, focus on paying off the cards first that are closer to their limits (maxed-out credit cards)
- Request for an increase in your credit limit
- Pay more than once in a billing cycle to lower the balance reported to the credit bureau
4. Consolidate your debt
If you have multiple high-interest loans and find it difficult to manage the repayments, debt consolidation can help. With a low-interest personal loan, you can pay off your multiple loans and worry about making just a single EMI each month. Debt consolidation helps you improve your credit score and saves a considerable amount of money you pay as interest.
5. Build a strong credit age
If you have a long positive experience with credit, it’s considered good for your credit score. A good credit age gives an impression of you being a responsible borrower. The best way to build up your average credit age is to leave your oldest accounts open. For example, even if you are not using your old credit cards, and if they are in good standing, don’t close them. Keep them open to increase your credit age.
6. Limit how often you apply for new credit accounts
Opening a new credit account not only decreases your credit age but also can hurt your credit score. Every time you apply for a new credit account, your application leads to a hard enquiry. This type of enquiry has the potential to hurt your credit score a little. But when there are multiple credit applications, too often, these hard enquiries can add up to have a compounding effect on your credit score.
7. Choose a repayment tenure wisely
When borrowing a loan, make sure that you choose a repayment schedule that works best for you. If you don’t have a lot of money at your disposal each month, choosing a longer loan tenure makes sense. This will ensure that you pay your EMIs comfortably, without the fear of default.
8. Be patient
Improving the CIBIL score doesn’t happen overnight. It takes time and consistent efforts to improve your credit habits like the ones mentioned above. Over time, your efforts will definitely pay off.
How long does it take to rebuild credit?
Ideally, it takes around 3 to 6 months of good credit behaviour to see a significant change in your CIBIL score. However, it can take longer if there are too many negative elements in your credit report, such as late payments, frequent credit applications, maxed out credit cards, etc. That said, it takes less time to build a good CIBIL score than to repair a bad one.
FAQs
How fast can I improve my credit?
If you have a low score, you can quickly make a significant change in your credit score than someone who has a strong credit history. Make repayments on time, and use less of the available credit limit to see a noticeable change in your credit in as little as 30 days.
How can I increase my credit score in one month?
Pay down your balances on your credit cards, and make sure you make your payments on time each month. These are powerful steps that can potentially make a positive change in your credit score in a month.
Is it possible to get my credit score up by 100 points in 30 days?
If your low score is due to a single late payment, you can improve your credit score by 100 points through positive credit habits in lesser time. If your poor credit score is due to a lot of negative factors such as poor credit utilisation, late payments, too many loan applications, etc., it may take time to improve your credit score, but if your efforts are consistent, they are sure to pay off.
