Tips to Increase your CIBIL Score

Take these steps to increase your CIBIL score and boost your chances of securing credit in the future:

1. Use Credit Responsibly: On-time repayments helps to build a strong credit profile.

1. Be Cautious as a Guarantor: Only guarantee loans if you are confident in the borrower’s ability to repay.

1. Limit Loan Applications: To prevent a negative impact on your score, avoid taking multiple loans in a short time .

1. Increase Credit Limit: A higher limit with controlled spending lowers your credit utilisation ratio.

1. Keep Credit Utilisation Low: Use less than 30% of your available credit to show responsible usage.

1. Pay Dues on Time: Timely payments of EMIs and credit card bills are crucial for a healthy score.

1. Monitor Credit Activity: To catch errors or fraud early, check statements and reports regularly.

1. Avoid Frequent Credit Applications: Multiple inquiries can slightly reduce your score.

1. Stay Consistent with Payments: Consistent, on-time repayments are key to score improvement.

1. Choose Longer Loan Tenures: Lower EMIs make repayments manageable and support a positive credit history.

How Long Does It Take to Improve a Credit Score?

Improving a credit score usually takes four months to one year, depending on past issues and consistent positive habits. Timely payments, low credit utilisation, and limited new credit help boost scores.

Why Do You Need a Good CIBIL Score?

A good CIBIL score offers several benefits when applying for a loan, such as:

1. Your reliability as a timely borrower.

1. Increases chances of loan approval and higher loan amounts

1. Helps negotiate for lower interest rates

1. Enables longer repayment tenures

1. Speeds up loan processing by earning lender trust

These Two Things Hurt Your Credit Score the Most

One of the most useful features of a credit card is the convenience of paying as well as getting the security. Thanks to these two factors, we have been witnessing a massive growth of credit cards.However, even though credit cards come with the convenience of buy now pay later, you have to make sure to be particular the repayments. A bad repayment history takes a toll on your credit score in a big way. Let’s understand how is your credit score calculated: 

1. 35% - Payment History
2. 30% - Credit Utilisation
3. 15% - Age of Credit History
4. 10% - Type of Credit
5. 10% - Credit Inquiries

All the aforementioned factors affect your credit score but the payment history and credit utilisation hamper your credit score the most.

Let us now understand how credit cards impact these two factors:

1. Payment History

The chances of missing out on credit card payment are usually high and therefore you should be extra careful and remember the due dates. If you are not able to keep up with the payment due dates, it is better to come up with a simple foolproof way to avoid delay.

You can either give standing instructions to your bank to pay off the bill from your savings account on a particular date. If you miss the due date or pay only the minimum due, your balance will accumulate interest. Any subsequent purchases on your credit card will also accumulate interest from the date of purchase. You also lose out on your interest-free period. Late payment of non-payment of bills hampers your credit score and brings it down.

1. Credit Utilisation

You should first learn how credit utilisation is calculated. Majority people are not aware that the higher your credit utilisation ratio, the larger effect it has on your credit score. As per experts, you should use only 20-30% of your credit limit. If you constantly spend a high percentage of your credit limit, say 60-80%, your credit utilisation ratio takes a hit. It’s important for you to keep the ratio low as it enhances your credit score.

One way to tackle high credit utilisation ratios is to use multiple cards. As you already know that the 30% of your credit score comprises your credit utilisation ratio, you should be extra careful while using your credit card and always keep an eye on the credit limit.

It must be noted that improving your credit score take time and patience and it cannot happen overnight. You have to follow certain discipline and work towards your financial goals to achieve the desired credit score.

What is a Good Credit Score?

A CIBIL score ranges from 300-900, 300 being the lowest or bad CIBIL score and 900 being the highest. Your CIBIL score should be closer to 900 to get the best deals on interest rates for loans. A CIBIL score of 750 and above (750-900) is considered ideal by most lenders like banks and non-banking finance companies (NBFCs).

A good credit score can help you secure lower interest rates on loans and credit cards.

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