The CIBIL score of an individual plays a vital role in determining whether they are eligible for different loans and credit cards. For this reason, many pose the question – ‘how to improve CIBIL score’ on the internet.
A good or excellent credit score not only enhances a person’s creditworthiness but also presents additional financial opportunities. To know how to get these benefits, read below:
Best tips to improve CIBIL score
Each of the strategies discussed below works gradually and does not guarantee significant improvements in the short term.
Stick to timely repayments
Timely EMI payments can easily push one’s CIBIL score above 750. This is how more than 79% of Indians have managed to build a good credit score and maintain it.
To ensure timely credit card payments and loan repayments, one can set up auto-debit for one of their bank accounts. Otherwise, they can set custom notifications that will make them aware of their financial commitment well beforehand.
Maintain a low credit utilisation ratio
To avoid a negative impact on the credit report, borrowers are often advised to reduce their credit card balance through partial repayments. So, it is always better to find new ways to be less dependent on credit purchases.
Also, try to maintain a credit utilisation ratio of less than 30% of the credit limit. Apart from increasing the credit score, it helps gain the confidence of future lenders.
Keep checking the credit report at regular intervals
In case an individual is trying to build a good CIBIL score for a home loan, they should monitor their CIBIL reports for possible discrepancies.
This practice helps improve the accuracy of one’s credit score. So, they can determine exactly what areas can be possibly fixed to reach a financial goal.
Please note: One can be approached by different lenders for pre-approved loans if they have a flawless credit profile. These offers are related to loan products like LAPs, home loans etc. Hence, candidates can submit their contact details to check their eligibility for these deals.
As a result, it is evident that knowing how to improve CIBIL scores is vital for borrowers to experience a hassle-free loan application process.
Diversify the credit mix
As per reports issued by the National Bank for Agriculture and Rural Development (NABARD), different types of loans in a person’s credit report actually reflect better creditworthiness.
However, that doesn’t justify taking too many unconventional personal loans as that may disrupt financial stability. Instead, applicants should try to apply for secured loans like home loans to boost credit mix.
Avoid unnecessary credit enquiries
It is recommended to avoid too many credit enquiries within a short span. As per RBI guidelines, not following this advice can eventually decrease one’s capacity for borrowing.
Also, when the frequency of raising queries goes up, a person’s number of future enquiries may get restricted. It can indirectly cause financial problems when they are in serious need of funding.
Do not close old loan accounts
Lenders in India give ample priority to a consumer’s credit history before sanctioning any loan amount to them. Thus, the longevity of a credit account has a direct relation with a higher credit score. It is simply because these accounts help a prospective lender track one’s past instalment payments and evaluate their overall credit behaviour.
How is CIBIL score calculated?
Generally, lenders want a credit score of more than 750 to readily approve a person’s loan request. In addition to this information, when someone knows what factors contribute to their three-digit credit scores, they can make wiser decisions to improve them.
So, here are the factors affecting CIBIL score calculation:
- Payment history – Around 30% weightage of the overall score
- Credit types and tenures – Around 25% weightage of the credit score
- Credit exposure – Around 25% weightage of the credit score
- Miscellaneous – These are additional factors that sum up to contribute around 20% weightage to one’s overall credit score
Besides working towards improving the credit score by attending to the above-mentioned factors, a consumer can also seek advice from their preferred lender on how to improve their CIBIL score. It will help build a good relationship gradually and the borrower can negotiate for better terms.