Tips to Build or Maintain a Healthy CIBIL Score

Many people have low credit scores and don't know how to improve them. Your credit score is really important for your financial health. If your score is bad, it can make it hard to get approved for loans or credit cards. Even if your score is good, it's a good idea to keep an eye on it because mistakes can happen that lower your score.

9 Ways to improve your CIBIL score

Follow these steps to start building or improving your CIBIL score so you can get credit more easily and enjoy extra benefits:

1. Maintain Healthy Credit Mix

Unsecured loans like personal, business, or education loans can often lower your credit score. Unlike secured loans, like home or auto loans, unsecured loans don't require collateral, which makes them riskier for lenders. To keep a good credit score, it's smart to have a mix of different types of credit. This helps balance the risk and can improve your credit score. Having a healthy mix of credit shows lenders that you're not overly reliant on one type of loan, which reduces the risk for them and increases your chances of getting approved for credit in the future.

2. Do not close old accounts

It's not a good idea to close your old accounts or credit cards because it shows that you have a long history with the bank and a good repayment record. Closing these accounts erases your history with the bank and can hurt your credit score.

3. Check your CIBIL report for Errors

Checking your credit report is crucial because it has a big impact on your credit score. Look for any mistakes or wrong information in your report. If you find any discrepancies like a wrong name or an outdated address, you can dispute it and get it fixed. This helps improve your CIBIL score.

4. Avail at least one credit product

People who don't have a credit history can struggle to get loans approved. And if they do manage to get one, the interest rates are often higher than for those with a credit history. Getting a credit card and using it responsibly can help build a credit history and improve your credit score, making it easier to qualify for better loan deals in the future.

5. Lower your Credit Utilization

It's important to keep your credit utilization ratio below 30% of your total available credit limit. You can do this by spreading your spending across multiple credit products. By keeping your credit utilization ratio low, you'll improve and maintain your credit score, which will make you more financially secure in the long run. Avoid maxing out your credit cards, as this shows you're relying too much on credit and could lead to your credit applications being denied.

6. Avoid late payments

Make sure you pay your loan or credit card EMIs on time because if you're late, it can hurt your CIBIL score. You can avoid late payments by setting up auto-payments, setting reminders, or making a monthly checklist.

7. Avoid Multiple or frequent enquiries in short duration

Avoid applying for multiple credits at the same time, as it may make you seem too eager for credit to lenders. Each time you apply for a loan, there's a credit inquiry, and too many inquiries can make lenders wary. It's best to only apply for new credit when you really need it to avoid the risk of being rejected for loans due to appearing overly eager for credit.

8. Do not exhaust available credit limit

Try not to use up your entire credit limit because it can raise your credit utilization ratio and lower your credit score. If you find yourself using a lot of your credit limit, you can ask the bank to increase your limit.

9. Monitor your co-signed loans

It's crucial to monitor any loans that you've co-signed. Sometimes, the borrower might face financial difficulties and miss payments without your knowledge. These missed or delayed payments can negatively affect your credit score. That's why it's important to keep tabs on any loans you've co-signed to protect your credit score.

Conclusion:

A credit score is a three-digit number that shows how reliable someone is at repaying loans. It ranges from 300 to 900, with higher scores being better. Financial institutions and companies often prefer scores close to 900. According to TransUnion CIBIL, about 79% of loans or credit cards are approved for people with a score above 750.

Scores above 750 are generally seen as good enough by most lenders. To get loans or credit cards at lower interest rates, it's essential to think about a few things before applying. By following some simple steps, like paying bills on time and using credit responsibly, you can gradually increase your credit score.