Tips to Improve your CIBIL Score

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It is important to have a high CIBIL score as it helps banks decide whether to extend a certain amount of credit to you or not. Here are some things that help in improving your CIBIL score:

Pay your loan EMIs consistently on or before the due date.
Ensure that you make credit card bill payments on or before the due date.
Pay credit card bills in full every time without fail.
Avoid over-leveraging.
Maintain clean financial records without any outstanding debts and late payments.
Have a good balance of secured as well as unsecured credit.
Maintain a low credit utilisation ratio (20-30%) of the actual credit card limit.
Make sure to check your credit score regularly.
Review your credit report periodically and ensure there are no errors in the report.
Do not depend on financial institutions and obtain copies of your credit reports.
Maintaining discipline when it comes to credit card usage is of utmost importance. Make sure you are not exhausting your entire credit limit.

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Factors that Affect your CIBIL Score

A CIBIL score is made up of four main factors. Each factor has a different weightage. Let’s take a look at the factors and how they can affect your CIBIL score.

Payment History	30%
Credit Exposure	25%
Credit Type and Duration	25%
Other Factors	20%

Payment History:In order to maintain a high score, you need to be prompt with your monthly credit card bill payments as well as loan EMIs. If you are delaying your payments or are defaulting on EMIs, it will hamper your score. Irregular payment behaviour also suggests that you are struggling to manage your credit health. A recent CIBIL analysis (reported by the Financial Express) revealed that 30-day delinquency can reduce your score by 100 points.
Credit Utilisation Ratio: Having a loan or multiple credit cards does not negatively impact your CIBIL score. However, if your credit utilisation ratio is high, it will bring your score down. Ideally, you should only spend up to 30% of your credit limit. A higher credit utilisation ratio suggests you have been increasing your debt and are likely to turn into a defaulter. Therefore, it is advised to keep a tab on your credit expenses and make sure you are not maxing out your limit.
Type of Credit and Duration: The age of your credit history is the number of years that have passed since you opened your first credit account. CIBIL considers the average number of years for which you have been holding a credit account. Having a good balance of secured (car or home) loans as well as unsecured (credit card) loans helps to boost your score. When you have a healthy credit mix, it suggests that you have good experience in handling different types of accounts. A long credit history with good repayment behaviour makes you a low-risk borrower. It is better to start building your credit history at an early stage as it will be helpful later at the time when you’re planning to buy a house or a car.
Other Factors: A credit inquiry is another factor that is considered while calculating your score. Every time you apply for a loan or a credit card, the lender will check your credit report. This is called a hard inquiry. If you make multiple credit requests within a short period, it will bring your score down. Therefore, it is advised to spread your credit applications throughout the year instead of making them all at once.
Building a CIBIL score is a slow process. You need to show consistent repayment behaviour and handle the available credit in a responsible manner to maintain a good score.
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Factors that Don’t Affect your CIBIL score?

Your score is affected by many factors in addition to payment history and credit exposure, among others. However, there are some factors that will have no impact on your score. Here’s a list of them:

Transactions related to your debit card:Any transactions made using your debit card will not affect your CIBIL score. CIBIL only tracks activities related to your credit card payments. Ensure you pay your credit card bills on time to maintain a healthy CIBIL score.
Cheques that have bounced:Your CIBIL score will not be negatively impacted by a bounced check. When the business calculates your CIBIL score, these factors are not taken into account. Despite the fact that late and bounced payments are directly reported to CIBIL, your score is unaffected. Unless the bounced check is tied to a loan installment or repayment, they have absolutely little effect on your CIBIL score.
Account Balance and Investment Schemes:CIBIL only checks your payment status related to any loan you may have availed and your credit card bills. If you have delayed the payment of EMIs and credit card bills, then your CIBIL score gets affected. The amount of cash you have in your savings account or investments made by you have no bearing whatsoever on your CIBIL score.
Non-operative Savings Account:If you have any bank account which is not operative anymore or may have a negative balance, don’t worry about your CIBIL score getting affected because of it. The number of active savings accounts and negative balances are not tracked by CIBIL. Therefore, inactive accounts are not taken into account for calculating your CIBIL score. To better your financial situation, you should close all inactive accounts.
Change in demographics:Your CIBIL score contains important data such as your name, occupation, city of residence, etc. However, if there is any change in any of such demographics, your CIBIL score will remain unaffected.
Your spouse’s CIBIL score:Unless you are applying for a loan jointly, your spouse’s CIBIL score will not have an impact on your own CIBIL score. Only your spouse’s low CIBIL score affects your eligibility or likelihood of acceptance. If your spouse has a strong credit score, you should only apply for a loan jointly.
Checking your CIBIL score repeatedly:One of the biggest misconceptions is that you check your CIBIL score repeatedly. Generally, you must check your CIBIL score during January or July since that is when your score gets updated. However, if any financial entity raises a hard inquiry asking the CIBIL to show them your CIBIL score, then your numbers drop. You must check your CIBIL score on a regular basis and ensure you take measures to improve your score if they have dropped.
Non-payment of utility bills:Your CIBILTM score won’t be impacted by utility expenses like house taxes, energy bills, or cell phone bills. However, since not paying your debts on time is generally bad, it might affect other aspects of your life.
Change in your income:Your CIBIL score is unaffected by the change in income. Some individuals believe that CIBIL keeps track of your income and expenses. However, CIBIL is unconcerned about this. It just cares about the state of your credit. Your ability to spend money will change as your income changes. You must budget your spending based on your income. If you have credit card bills, or loan EMIs, this could have an impact on your ability to pay them back.

Benefits of Good CIBIL Score

A good CIBIL score is necessary and carries numerous advantages. That’s why an aspiring loan applicant must be informed of the benefits, before applying for a loan. The benefits of a good CIBIL score are mentioned below:

Lower interest rate: Lower interest rates are the main benefit of having a good CIBIL score. The rate of interest is determined by the likelihood of default. A good credit score gives your lender assurance that you will repay the loan regularly and timely. Hence, the risk of default is low which allows your lender to offer you a lower interest rate.
Higher chances of approval: When you apply for a loan, any lender will pull your credit report and run a credit check. If you have an excellent credit score, your chances of getting a loan approved are exceptionally high due to your solid credit history and previous instances of regular and timely loan repayments. A good CIBIL score also shows that you haven’t taken out many loans from different lenders, or that you haven’t accumulated debt that makes it difficult to repay the loan. As a result, the lender is confident that the loan will be repaid by you in full and on time, and so the odds of approval are quite high and nearly guaranteed.
High Credit Limit: A good CIBIL score indicates that you are a reliable and responsible borrower. As a result, the lender may not be afraid to extend you a bigger credit limit on your card or a higher loan amount.

Courtesy To : Bankbazaar