An individual’s CIBIL score is derived from data submitted regularly by various banks and financial institutions. As such, maintaining a good CIBIL score is not an easy task. Any slip on your part while repaying credit can have drastic effects on your overall CIBIL score.
Though there are various underlying principles when calculating CIBIL score, loan EMIs and credit card bills form the backbone of the calculations. Credit scores are calculated on the basis of complicated algorithms, and emotions do not figure in the formulations. Missing on payments for any reason whatsoever can adversely impact your credit score.
CIBIL score limits
The Credit Information Bureau (India) Ltd is the credit rating agency that provides CIBIL reports and scores. According to data released by CIBIL, about 90% of all passed loan applications have been toward individuals with a CIBIL score greater than 700. Evidently, maintaining a decent CIBIL score is imperative for you to avail more credit.
Also, as banks and other financial institutions move toward credit-risk based calculations for interest rates, having a high CIBIL score puts you in a strong position when requesting new credit. Banks are likely to offer you preferential interest rates if your CIBIL score is high enough.
Mr Singh had recently bought a house on loan in the outskirts of the city. The house is spacious with enough room for Mr Singh’s family and parents. He also drives a sedan he bought on loan 3 years back. As his family got bigger, he started planning to buy a new bigger car, an SUV. He duly went to the bank with which he had previously got a car loan and applied for a new loan.
He was in for a shock of his life. His loan application got rejected even though the last time he checked his CIBIL score while applying for loan, it was a decent 760. The bank informed him about the loan rejection with the reasons being low CIBIL score and negative reports in bill payments.
On requesting a personalized CIBIL report, Mr Singh found that his latest credit score was 640, a drop of more than 100 points in the past 3 years. The errors that he found turned out to be 2 late payments on his car loan EMI as well as a few of credit card bill payment defaults. He found that the missed payments amounted to negative reports in his credit report and effectively brought his CIBIL score down by a big number.
Mr Singh started keeping reminders for all recurring dues after this ordeal, as he had realized it was his mistake to forget to transfer the amounts on some occasions. He learned that it is imperative to maintain financial discipline in life as your age progresses and you get more responsibilities. It is easy to miss a few payments, but rebuilding your credit score can take a long time.
Getting CIBIL score back on track
Increasing your CIBIL score once it has sunk imperiously is a task that requires perseverance. But firstly, you have to ensure that the mistakes that got you into the bad position are not repeated. You should analyse the detailed CIBIL report and understand where mistakes were made. To improve your credit score to a comfortable level, you can do the following:
- Never miss a repayment such as loan EMIs or credit card bill payments.
- Instead of paying the minimum value each time for credit card bills, try to pay outstanding balance in one go.
- Don’t appear too credit hungry by reviewing your credit score regularly. Each time you request a copy of your credit information report (CIR), it gets listed on the report, and too many enquiries denote your desperation for new credit.
- Secured loans such as home loans help improve CIBIL score, whereas unsecured loans including personal loans, car loans, credit cards etc. negatively affect CIBIL score.
- If using a credit card, avoid using the full credit limit every month.
- Avoid taking too much credit in your name. If you already have a number of loans still in repayment tenure, you should avoid taking new loans altogether until you can pay off the previous ones. If it is still necessary, try getting new loans on family members’ names.
Finally, your credit report is a history of all your borrowing from banks, and having a long and positive credit history makes you very credit-worthy in the eyes of the lenders.