Elevate Your Credit: Tips to Improve Your CIBIL Score - Loan Trivia


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Friday 16 February 2024

Elevate Your Credit: Tips to Improve Your CIBIL Score

An individual's credit score is a three-digit number between 300 and 900. It is important as it is the most accurate measure of one's creditworthiness and repayment capacity. Lenders require loan applicants to have a credit score above 750 to be eligible for any kind of loan in India. A credit score below 750 makes loan applicants lose negotiating power, often compelling them to repay their loans at high-interest rates and over undesirably loan tenors. Loan applicants must therefore try and maintain a credit score above 750. Here are a few tips on what credit users can do to maintain such a credit score. 

Simple Tips on How to Improve Your Credit Score

  1. An individual's repayment capacity has a major impact on their credit score. It is responsible for 35% of a person's credit score. Therefore, to build a strong credit score, one must build a strong credit repayment history. Paying all your EMIs and credit card bills on time without missing any due dates is the first step towards improve cibil score.

  2. The second factor that has a major impact on your credit score is your credit utilization ratio. The credit utilization ratio refers to the total percentage of one's credit card limit that is under use. The higher the credit utilization ratio, the higher an individual's dependency on credit and thus, the lower their credit score. Ideally, all credit users must try their best to keep their credit utilization ratio below 30%. Clearing the entire amount due on one's credit card each month is one of the easiest ways to build a strong credit score. 

  3. Credit users must also understand the difference between hard enquiries and soft enquiries. Hard enquiries refer to enquiries made by lenders about credit users. Soft enquiries refer to enquiries made by credit users regarding their credit scores. While soft enquiries do not impact a person's credit score, too many hard enquiries can completely ruin their credit rating. To keep the number of hard enquiries within the limit, credit users must refrain from applying for too many loans and credit cards simultaneously. 

  4. Lenders prefer lending money to individuals who have handled both secured and unsecured loans in the past as such individuals have established their ability to handle all kinds of debt. Therefore, individuals wanting to build a strong credit score must try and have both secured and unsecured loans. 

  5. Lastly, the age of your credit history also impacts your credit score. The older your credit history, the better your credit score. It is thus that credit users are advised to never close old loan accounts, even the ones that they have completely paid off. Similarly, they must also never close old credit cards, even the ones that they are not using. 

In conclusion, building a good credit score is not the most difficult task. Credit users who have an understanding of the factors that impact an individual's credit score can take corrective measures frequently to ensure their credit score stays on track. Further, practising financial discipline is important. 

If you are planning to apply for a loan, we recommend checking your credit score at least 6 months before applying for the loan. Doing so would give you sufficient time to take corrective measures and improve your credit score, i.e. if it is below 750. 

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