The credit score or CIBIL score is assigned to every individual in the country who has availed a loan or credit card at some point.
It ranges from 300 to 900, and you have to know how to ensure it stays above 700 to receive financing.
At present, the score provided by CIBIL is accepted by more than 2,400 financial institutions in India. Experian, Highmark, and Equifax are the other credit information companies providing the score.
CIBIL determines the score based on your Credit Information Report (CIR) which they avail from lenders.
The CIR includes information regarding your credits like:
- Type of credits – loans or credit cards.
- Size of credits.
- Outstanding credit balance.
- Overdue payment.
- Days of delayed payment.
- Settled or written off credit.
Generally, your score will be high if you have managed and repaid all your credits responsibly.
To elaborate the above:
- Avail a secured credit card
You score only begins to improve once you avail a loan or credit card and start repaying it. However, financial institutions require a high score when you apply for any of those.
So, you can avail a secured credit card. Credit card companies don’t check your score when you avail these cards. They sanction these credit cards against a fixed deposit. The credit limit that you get with these cards is a discounted amount of your fixed deposit.
Also, refrain from closing an old credit card if you already have one. The longer you hold a credit card and manage it correctly, the higher chance you will have to improve CIBIL score.
- Never make multiple credit applications
Lenders will check your credit score when you apply for unsecured credit. These credit inquiries lower your score. Hence, your credit score will drop drastically if you apply for too many unsecured credits.
Other than secured credit cards, another way to avoid credit checks is to avail pre-approved offers. Financial institutions that provide pre-approved offers make a soft credit enquiry when you avail the same. Soft enquiries will not affect your score.
A lender tells you the loan amount or credit cards you are eligible for after conducting such an enquiry. Hence, you have higher approval chances.
Do note that they will conduct a hard enquiry when you make a formal application for credit after availing pre-approved offer. Hard enquiries may impact your score.
- Pay your debt in time
Here, debt includes loan EMIs and credit card bill. Paying them in due time is one of the easiest and quickest to improve CIBIL score.
- Pay the total payment due
You might have noticed that your credit card statement comes with a total amount due and minimum payment due.
Paying the full payment due increases your score. On the other hand, the minimum amount will have the opposite effect.
Also, your total payment gets carried forward to your next month’s statement when you pay the minimum amount.
- Check your credit report
Your credit report or CIR is a list of all of all information related to the credits you have availed. Many a time, it can include errors and mistakes. These inaccuracies might arise due to faults in data entry. Financial institutions manually enter your credit information, and any errors during the process can hurt your credit score.
Also, credit information companies also sometimes make mistakes owing to their automated process. Another person’s loan may enter your credit report due to similar personal information.
Errors in your credit report is one of the reasons for loan application rejection. Hence, it is recommended that you keep a check in your report and dispute any inaccuracies. Doing so will CIBIL score.
- Keep the credit utilisation under 30%
Your credit card comes with a limit or the maximum amount that you can spend with it. However, utilising all of it will lower your credit score as it makes you look credit hungry.
Hence, never utilise more than 30-50% of your credit limit. Doing so will improve your credit score.
Follow these simple tips, and you will be able to improve CIBIL score in a short time. A higher credit score will help you secure a business loan quickly and also get lower interest rates.