The Credit Information Bureau (India) Limited (CIBIL) maintains a record of all your credit-related activities, such as your credit card payments and past loan repayments. Based on this information, CIBIL issues a credit score and a Credit Information Report (CIR), also known as credit report.
Banks and Non-Banking Financial Companies (NBFCs) conduct an extensive check on your CIBIL score when you apply for a loan. A high CIBIL score assures the lender of your ability to repay the loan on time. Lenders, therefore, provide quick loans to those with a high credit score, and also offer attractive interest rates and better terms on the deal.
In case you have a low credit score, you may keep the following six tips in mind to improve your CIBIL score.
- Check for errors and rectify them, if any
There may be certain errors that impact your credit score in a negative manner. For example, although you may have repaid all your outstanding amount, the loan may show as active due to an administrative error. Rectifying such errors will have a positive impact on your CIBIL score.
- Make repayments on time
One of the most important aspects considered while determining your credit score is your ability to make timely repayments. Making late payments or missing a payment may adversely impact your score. If you repay on time, lenders perceive you as a low-risk individual and may provide instant loans without any hassles.
- Avoid multiple loan applications within a short period
Many individuals make the mistake of applying for a loan with multiple lenders. This may indicate that you are desperately seeking funds and looking for multiple sources of credit. It is, therefore, advisable to avoid making numerous loan applications in a short period of time.
- Avoid spending more than your credit limit
High credit utilization may have an adverse impact on your credit score. Spending a high percentage of your credit limit indicates that you may not focus on repaying the credit card amount and may not fulfill the debt obligation. Not utilizing the entire credit limit will not only help improve your score but alsoensure disciplined financial management.
- Refrain from too much debt
Havingmultiple loans and credit card bills affects your score in a negative manner. Instead, you may minimize your debt, and apply for loans and credit cards only when necessary.
- Avail of secured and unsecured loans
Secured loans require collateral, such as a house or car to be pledged as security against the loan. An unsecured loan, on the other hand, does not require collateral against the loan. Borrowing only unsecured loans has a negative impact on the CIBIL score. You may, therefore, avail of the right mix of both secured and unsecured loans to improve your CIBIL score.
A high credit score reflects stronger creditworthiness. Lenders perceive you as a low-risk individual and may provide fast loans without any difficulties. You may, therefore, consider the aforementioned points and improve your credit score.