A credit score is a numeric rating creditors use to assess borrower risk in making lending decisions. The most commonly used credit score in India is from CIBIL. This rating is defined by how much debt you have, whether you pay your bills on time, how many credit cards you have and any unpaid bills, among other factors. The value ranges between 300 – 900. Higher credit score increases the chances of your loan application getting approved. Nearly 90% of the loans are granted for individuals with score greater than 750. While score between 300 and 549 is considered poor, anything from 550 to 700 is considered fair. Score belonging to either category can be improved.
Improve your credit score
Simply focus on understanding the factors that impact your credit score and take conscious measures to improve it. If you keep at it, you can easily improve your credit score over time. Take a look at some of the tactis that will help you improve your score.
Set Reminders for Payment and Be Disciplined with Credit
Your repayment of outstanding debt can have a significant impact on your credit score. This is why you need to maintain discipline when it comes to paying EMIs. Delays in EMI payments not only force you to pay a penalty, but also lower your credit score. So, if you find that this is something that you’re guilty of, make it a point to set reminders for EMI payments so that you can tackle them on time.
Ensure You Maintain Older Credit Cards to Lengthen Credit History
If you have old credit cards, you should continue to maintain them as long as you are able to pay your bills in full, on time. This will help you build a strong and lengthy credit history, which in turn will help you increase and maintain a good credit score in the future.
Customise Your Credit Limit
Your credit utilisation ratio has a significant impact on your credit score. The more you are able to restrict your credit usage as per the allotted limit, the better it is for your credit score. Reaching the limit has the opposite effect as it lowers your credit score. One way of tackling this is to get in touch with your lender and customise your credit limit based on your expenses.
Opt for a Longer Tenor when You Take a Loan
When borrowing a loan, try choosing a longer tenor for repayment. This will ensure that your EMI is low, and so, you are able to make payments on time. When you don’t default, delay or skip paying EMIs, your credit score will improve.
Avoid Taking on Too Much Debt at One Time
The number of loans you take in a fixed period of time should be minimal. Repay one loan and then take another to keep your credit score from crashing. If you take multiple loans at once, it will show that you are in an unforgiving cycle where you have insufficient funds. As a result, your credit score will fall further. On the other hand, if you take a loan and repay it successfully, it will give your credit score a boost.
Check Your CIBIL Report for Mistakes and Rectify Them
In certain cases, CIBIL may make mistakes when it comes to updating your records, note incorrect information against your report, or delay recording details. This will also bring down your score. So, ensure that you check your CIBIL report from time to time. This will help you identify any errors and correct them by submitting a CIBIL Dispute Resolution Form online. As a result, your credit score will improve.
Create Credit History by Choosing Different Forms of Credit
If you haven’t borrowed funds in the past, you won’t have a credit history and as a result, your CIBIL score will be low. So, ensure that you borrow a healthy mix of credits, both secure and unsecure loans, of a long and short tenor to build a strong credit score. This will help you access low interest rates and higher loan amounts in the future whenever you choose to apply for a personal loan.
The bottom line
It is important to note that these steps will not lead to an immediate change in your score. After you have implemented them, it will take around 6 months to a year for your credit score to improve. Use the available credit facility prudently to ensure availability of credit at cheaper rates in the future.