September 16, 2024 · 11 mins read
Santosh Kumar
Is your bank not approving your credit cards? Are banks rejecting your loan applications or charging higher interest rates than others? How frustrating it would be, especially when you require some urgent money. But why is this happening to you? And what made the lenders decide not to approve your loan or credit card? The answer is maybe your CIBIL score is too low. So, find out how to improve CIBIL score easily immediately here.
The Credit Information Bureau (India) Limited provides a 3-digit credit score based on your credit history, which lenders can use to understand your responsibility regarding borrowing and paying back your loans and bills. If you have a good score, it proves you are a creditworthy person. That doesn't mean that if you have a low score, then you are not trustworthy. On the other hand, it may mean that you have no proven history to show your creditworthiness toward debt and bill payments.
Now, you might be wondering what other impacts the CIBIL score can have on your life, how the CIBIL score is calculated, and how to increase CIBIL score fast. Read ahead to get a clear idea about the basics of CIBIL score and how to improve your score.
Now that you know what the CIBIL score is, let's explore how it is calculated and the best and worst scores so that you can determine when and how to take steps to improve it.
CIBIL considers elements like payment history, credit utilisation, credit length, credit mix and multiple recent credit inquiries to score your creditworthiness.
These factors are given weights, and a consolidated score is calculated, which decides your creditworthiness. The score ranges from 300 to 900, and here is what each range specifies.
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1. Excellent CIBIL Score: 750 - 900
2. Good CIBIL Score: 650 - 750
3. Average CIBIL Score: 550 - 650
4. Poor CIBIL Score: 300 - 500
Even though scores up to 650 are considered good, if your score has dropped below 700, immediately jump into action to increase your score to avoid any mishaps.
There are several answers to how to improve CIBIL score. Though the ideal credit scores vary for different types of loans, a score less than 650 is considered bad, and lenders may have difficulty trusting you to pay back your credits and hence may reject your credit card or loan application. Even though if they sanction your loan application, they may increase the interest rate. It is not just banks or financial institutions where you encounter such a situation; you will also miss various other opportunities if your CIBIL score is low.
If you have a low credit score, that does not mean that it is the end. You can take several simple measures on how to increase CIBIL score, as it is updated monthly.
Read More: CIBIL Vs Experian
Your credit score greatly depends on your repayment behaviour. If you miss a payment, it will drastically lower your score. Partial payments are also as damaging as missed payments. If lenders see that you are not regular, they may not offer you a loan or credit card. So ensure you never miss paying your loans and bills hereafter so your score builds up quickly.
- What you can do: Automate loan payments from your income account so that you never miss a payment unknowingly. Also, reserve a sufficient amount for loan and bill payments the month ahead so that you will never fall short of money and miss a payment. You can also set calendar reminders to ensure that everything goes right.
Are you the person who has never missed a monthly payment? If yes, then this might not be a good answer to your question How to increase your CIBIL score. Then check whether you have paid any bills late. Not only missed payments but also late payments will affect your credit score. The longer your payment is past due, your score will decrease. Even a single late payment, especially if it is recent, is sure to damage your credit score. Late payments are signs that you are least bothered about paying your bills and may negatively impact your score, leaving a wrong impression about your trustworthiness.
- What you can do: Schedule payment dates and automate payments so that you will be on time every time. Make sure you stick to the schedule. Don’t forget to set reminders to recheck whether you have paid all bills on time.
If you have credit cards and you use them to their maximum limits, then you are pushing yourself towards lower credit scores. It is a sign of over-utilisation of your credits, which is a sign that you highly rely on credits for your expenses. Experts consider a 30% Credit Utilisation Ratio (CUR) as a safe move. Though 30% is not a hard and fast rule, higher credit utilisation will make lenders think twice before sanctioning financial credits.
- What you can do: If your expenses exceed 30% of the credit limits, contact the banks or financial institutions to increase your credit limits. By doing so, your CUR will be within safe limits and help you build your credit score. But remember, increasing credit limits doesn't mean that you can opt for limits more than your income. Plan and wisely decide the safe credit limit within your budget and act accordingly.
Read More: How To Read Your Credit Report
Though managing different types of credits is not a primary factor for improving your credit score, having a strong mix of credits like credit cards, vehicle loans, home loans, and so on can boost your score over time. With a stronger credit mix and reliable credit history, you can easily climb the score ladder.
- What you can do: When any need arises, you can opt for loans if it fits within your budget. To build your CIBIL score, avoid taking multiple loans, as this is one of the factors that have the least impact on the score and may take years to influence the score.
Though having multiple credit cards positively influences your credit score, applying for more cards within a short span will bring the score down. The lender will run a hard inquiry on your credit reports whenever you apply for a credit card. Multiple inquiries in a short period will have a negative effect on your CIBIL score. Again, multiple credit applications are a sign that you are running out of sufficient funds and you are in a severe financial crisis.
- What you can do: Avoid multiple credit applications simultaneously. If you can upgrade a credit account, then opt for it or apply one at a time. Also, plan your budget so that you will be able to repay the loan or bills if it gets sanctioned successfully. Otherwise, you will crash your credit score.
Read More: CIBIL Score Role in Loan Application Process
The tenure of accounts is yet another factor that greatly impacts the CIBIL score. Older accounts prove your credibility and allow lenders to assess your credit behaviour for a longer duration. Constant good credit behaviour for ten long years is better than just 3 years, right? Why should you want to miss that opportunity?
- What you can do: If an old credit card is active, it is better to retain it, as it is a strong foundation for building your credit score. You can consider upgrading or downgrading the card to suit your needs. Think twice before closing any credit accounts with a positive credit history.
When your close acquaintances are in financial trouble, it is common for you to jump into action and become a guarantor or co-sign a loan for them. But have you ever thought about what would happen if they missed or delayed a payment? Do you know that it will pull down your CIBIL score?
- What you can do: Assess the credit behaviour of your friend or relative before co-signing for a loan. Make sure not to sacrifice your credit score to help others.
Read More: How Students with No Income Can Get a Credit Card
Sometimes, you or your financial aspects may not be the reason for your low CIBIL score. Confusing? Yes, any wrong information in the credit report may also be the reason for your low score. For example, a wrong address may make your report suspicious, or an unresolved query may not be your fault and, when resolved, may improve your credit score.
- What you can do: Check all the information in your credit report. Make sure your communication details, credit history, credit activities, and personal information are correct. Make sure to check the old transaction details, too. If you find anything wrong and doubtful, report it to the appropriate authorities as soon as possible and take steps to correct it so that you may not fall victim to someone else's fault.
Read More: How Credit Card Usage Makes or Breaks Your Credit Score?
Once your CIBIL score is good, it doesn't mean it will stay the same forever or improve further in the future. There are chances that your further financial moves may bring down your score.
- What you can do: Frequently check your credit score online and make sure it is always above 650 so that you can enjoy some credit-based financial opportunities. It is a good idea to check your CIBIL score at least twice a year. If you find your score has decreased, take the steps mentioned above to rebuild it.
Though the above steps are easy to implement on how to increase CIBIL score, you cannot rebuild a credit score in a single day. Remember, achieving a good score will take some time, and you have to wait patiently for it. Also, avoid applying for new credit cards or delaying bill payments while you are taking steps to improve your credit score. Whether you need a loan or not, make sure you have a good CIBIL score so that you can be future-ready to welcome credit-based financial opportunities when an emergency arises.
Does frequently checking the CIBIL score affect my score?
No, checking your CIBIL score yourself is considered a soft inquiry, which has no impact on the score.
For a strong credit mix, can I start using more debit cards?
Debit cards are not credits. It is just you are using the money you already own. So, it will have no impact on your CIBIL score. On the other hand, credit cards will impact your score. Make sure to use credit cards wisely and within your budget.
How to increase cibil score fastly? How long will it take?
Usually, financial institutions update details monthly. So, your credit score will be updated every 30 to 45 days. However, your credit score will gradually improve, and it may take a few months.
How many missed payments will affect my CIBIL score?
Even a single missed payment will have a negative impact on your score. Even if you have made the payment, the missed payment will remain in your credit history for almost seven years.
How to increase CIBIL score if I find any error on the CIBIL report?
Once you find an error, immediately file a dispute and get the error rectified; otherwise, it will negatively impact your score.
Does closing an old credit account have an effect on CIBIL score?
Yes, it is also important whether you close old credit accounts. In a nutshell, closing old accounts affects the CIBIL score negatively because those accounts make up the total score duration.
Should I expect that my CIBIL score will improve as soon as my debts are cleared all at once?
No – paying debt is a good thing to do, but the increase on your CIBIL score will not be as instant as that. Updating of the frozen score by the credit bureaus takes place only when reportable from financial institutions the debt payments thus usually spans between thirty (30) and forty-five (45) days.
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