Having a strong score is necessary for financial security and stability and to access a wide range of credit options. A good score shows an individual’s credibility and is a necessary parameter factored in by lenders when assessing loan applications. Explored here in this article is a stepwise guide on reviewing and ameliorating your score along with CIBIL score range infor and effective measures to enhance your score.
Part 1: Understanding the CIBIL Score
Familiarise yourself with credit scores
A credit score is a three-digit numerical representation of your creditworthiness, ranging from 300 to 900 in India. It is calculated based on your credit history, payment behaviour, credit utilisation, and other factors.
Importance of a good credit score
A higher credit score (typically above 750) increases your chances of loan approvals and favourable interest rates. It helps establish credibility and trustworthiness with lenders, leading to better credit opportunities.
Part 2: Checking your credit score
Obtain a free credit report
Visit the website of credit bureaus like CIBIL, Experian, or Equifax in India to request your credit report. Fill out the necessary details and follow the verification process.
Review your credit report
Analyse the report for accuracy, ensuring that all the information and transactions mentioned are correct. Check for any errors, discrepancies, or fraudulent activities that could negatively impact your credit score.
Understand the CIBIL score range
The CIBIL score range in India varies from 300 to 900, with higher scores indicating better creditworthiness. Aim for a score above 750 to be considered a reliable borrower.
Part 3: How to increase CIBIL score?
Pay your bills on time
Timely payments of credit card bills, loan EMIs, and other obligations are crucial for a good credit score. Set up reminders or automatic payments to ensure you never miss a due date.
Reduce credit utilisation
Maintain a low credit utilisation ratio by using only a small percentage of your available credit limit. Avoid maxing out your credit cards or using excessive amounts of credit.
Avoid multiple credit applications
Applying for multiple credit cards or loans within a short period can negatively impact your credit score. Make credit applications strategically and only when necessary.
Maintain a healthy credit mix
Holding a good credit mix of distinct credit types such as loans, credit cards or mortgages can positively affect your score. So, ensure to diversify your credit portfolio and be cautious of not overextending yourself.
Monitor your credit report regularly
Review your credit report periodically to ensure accuracy and identify areas that need improvement. Report any discrepancies or fraudulent activities immediately to the credit bureau.
Resolve outstanding debts
Pay off any outstanding debts or overdue balances as soon as possible. Prioritise clearing high-interest debts first to reduce the overall financial burden.
Maintain a long credit history
A longer credit history demonstrates stability and responsible credit behaviour. Avoid closing old credit card accounts unless necessary, as they contribute to your credit history.
Limit credit inquiries
Minimise the number of credit inquiries made by lenders, as excessive inquiries can lower your credit score. Only authorise credit inquiries when you are seriously considering a specific loan or credit card.
Avoid settling or defaulting on payments
Defaulting or settling payments may have a considerably negative impact on your score. So, strive to meet your financial commitments on time.
Part 4: Additional measures to improve your CIBIL score
Seek professional credit counselling
If you are facing difficulty managing your debts, consider seeking assistance from a reputable credit counselling agency. They can provide guidance and help you create a suitable repayment plan.
Maintain a stable employment history
A stable employment history shows reliability and increases your creditworthiness. Frequent job changes may negatively impact your credit score.
Use secured credit cards
If you are new to credit or have a low credit score, consider applying for a secured credit card. Secured cards require a security deposit, reducing the risk for lenders and helping you build credit.
Keep your credit accounts active
Avoid closing credit card or loan accounts unless necessary. Keeping accounts active demonstrates a longer credit history and responsible credit management.
Use credit-builder loans
Credit-builder loans are specifically designed to help individuals establish or rebuild their credit history. Regular payments on these loans can positively impact your credit score.
Regularly update contact information
Ensure your contact information, such as address and phone number, is up to date with credit bureaus and lenders. Prompt communication can prevent missed payments and potential credit score declines.
Part 5: Long-term strategies to increase your CIBIL score
Maintain a low DTI or debt-to-income ratio
You must aim at keeping a low debt obligation involving credit card balances and loans within a satisfactory limit in comparison to your income. A lower debt-to-income ratio indicates financial stability and responsible borrowing habits.
Avoid co-signing loans
Think carefully before co-signing a loan for someone else, as it makes you equally responsible for the repayment. Any default or delay in payments by the primary borrower can negatively impact your credit score.
Keep credit accounts open
Avoid closing credit card or loan accounts even if they have a zero balance. Closing accounts can reduce your available credit and shorten your credit history, potentially lowering your credit score.
Regularly update personal information
Update your personal information with credit bureaus, including changes in name, address, or employment details. Outdated information can lead to confusion and potential errors on your credit report.
Maintain a stable residential history
Lenders consider stability in your residential address as a positive factor when assessing creditworthiness. Frequent address changes may raise concerns about stability and negatively impact your credit score.
Use credit monitoring services
Consider subscribing to credit monitoring services offered by credit bureaus. These services provide real-time updates and alerts regarding changes in your credit report, helping you stay informed and identify potential issues.
Opt for secured loans or credit cards
If you have a limited credit history or a low credit score, applying for secured loans or credit cards can be beneficial. Secured loans require collateral, while secured credit cards require a security deposit, reducing the risk for lenders and increasing your chances of approval.
Maintain a reasonable credit limit
Request credit limit increases on your existing credit cards to improve your credit utilisation ratio. However, exercise caution not to accumulate excessive debt solely based on increased credit limits.
Practice financial discipline
Develop a budget and stick to it to ensure that you can meet your financial obligations without difficulty. Avoid unnecessary expenses and prioritise saving to build a strong financial foundation.
Seek professional help for credit repair
If you hold any considerable credit errors or issues on your report, instantly consult a reputable agency for your credit repair. They may guide you through the procedure of correcting errors, improving your score and disputing inaccuracies present in your report.
Limit joint credit applications
Be cautious when applying for joint credit, as the credit behaviour of the co-applicant can impact your credit score. Joint applicants should have a clear understanding of their responsibilities and ensure consistent payments.
Utilise credit score improvement programs
Some financial institutions offer credit score improvement programs to help individuals enhance their creditworthiness. Explore such programs to gain insights, access resources, and receive personalised guidance for improving your credit score.
Avoid over utilising credit facilities
Resist the temptation to rely heavily on credit cards or loans for day-to-day expenses. Overutilisation may lead to a debt burden and difficulty in repaying, negatively affecting your credit score.
Be patient and persistent
Building a good credit score takes time and consistent effort. Stay committed to responsible financial habits, and gradually, your credit score will improve.
Educate yourself about credit
Continuously educate yourself about credit management, financial literacy, and credit laws in India. Stay updated with changes in the financial landscape to make informed decisions and protect your creditworthiness.
By following these comprehensive stepwise measures and incorporating these additional strategies, you can effectively check free CIBIL score, understand the CIBIL score range, and actively work towards improving your creditworthiness. Remember, a strong credit score opens doors to better financial opportunities and stability.