7 Effective Ways to Improve Your CIBIL Score

Today, banks and Non-Banking Financial Companies (NBFCs) offer loans at competitive interest rates with minimal hassle. With online applications, you can complete the process in just a few clicks, and the approved amount is typically credited to your account within days. However, there is one key factor that can make or break your loan approval - your CIBIL score. It is a three-digit numeric that reflects your credit history. If your score is not up to par, you may face challenges such as rejection or higher interest rates. 

If you are wondering what qualifies as a good score and how to increase your CIBIL score, this article can help you. 

What is a good CIBIL score? 

Your CIBIL score is a three-digit numerical expression of your credit history and ranges from 300 to 900. A score above 700 is typically considered to be good, according to the Credit Information Bureau (India) Limited (CIBIL), a leading credit information company. Maintaining a higher score not only increases your chances of loan approval but also qualifies you for lower interest rates, which makes loans more affordable. Additionally, lenders process applications with a higher score faster, making it easier to get a loan in your hour of need. On the other hand, a lower score can make it challenging to secure a loan at favourable terms. 

Understanding the CIBIL score range 

How to build CIBIL score - Seven tips that can help

Here are seven things you can do to improve your credit score and qualify for better loan terms: 

1. Make sure you pay all your outstanding dues on time: 

One of the first things you can do to improve your CIBIL score is to ensure all your outstanding dues are paid on time. Since your CIBIL score reflects your credit history and payment behaviour, timely payments can help you build financial responsibility. If you have missed any payments, make it a priority to clear them as soon as possible. If possible, set up reminders to avoid missing future payments or automate your payments. With on-time payments, you can build a better CIBIL score over time.

2. Avoid taking on too many loans: 

Managing multiple loans can be difficult. It can also increase the risk of missed payments. When you have several loans, keeping track of due dates and ensuring you have enough funds to cover all your payments can become challenging. This, in turn, can negatively impact your CIBIL score. It is important to reassess your credit needs and limit the number of loans you take to maintain your payments better. If you already have multiple loans, you can consider consolidating them into a single loan. This reduces the number of due dates and helps to simplify your payments. 

3. Build a favourable history with credit cards:

 Credit cards can help you build a good credit history. You can consider using your credit card for monthly essential payments and clear the bill on time. Each of these transactions is recorded in your CIBIL report and contributes to an improved credit score over time. You can use your credit card for both small purchases or larger expenses, as you prefer. All you need to do is ensure your spends are within your means, and consistent timely repayment of credit card bills. 

4. Check if you have any joint loans: 

Joint loans can impact your CIBIL score, even if you are not the one missing payments. If you have co-signed a loan with a parent, spouse, or child, their payment behaviour will also be reflected in your credit report. Missed payments by your co-borrower can lower your CIBIL score and affect your ability to get a loan at a favourable rate in the future. Make sure to regularly review the payment history of any joint loans you have. If you notice missed payments, speak to the concerned person to resolve the matter. Additionally, avoid taking joint loans with individuals who are unreliable. 

5. Plan your loans well with an Equated Monthly Instalment (EMI) calculator: 

 An EMI calculator is a digital tool for planning your loans effectively. It enables you to calculate your monthly EMI based on the borrowed amount, loan tenure, and interest rate. These calculators are free to use online and provide a clear and realistic picture of your future obligations. Using an EMI calculator puts your financial commitments into perspective. Before applying for a loan, you must compare the EMI with your monthly income to ensure it fits comfortably within your budget. If the EMI seems too high, consider reducing the loan amount or waiting to save more. 

6. Select a longer loan tenure: 

 Choosing a longer loan tenure can reduce your monthly EMIs and make it easier to manage your loan liabilities. While repaying a loan quickly can save on interest and help you become debt-free sooner, it may not be the best option for everyone. You must carefully weigh the pros and cons when deciding on your loan tenure. Ensure you make an informed choice based on your income and goals. 

7. Be patient and keep track of your CIBIL score: 

It takes time to improve your CIBIL score. It cannot happen overnight. You must be patient and focus on consistently making responsible financial decisions. While you work toward a better score, it is also important to regularly check your credit report to monitor progress. This helps you spot any issues that might need immediate attention. If your score is poor, you can take timely action to address the problem. 

Why do you need a good CIBIL score? 

A good CIBIL score is crucial because it directly impacts your loan eligibility. Lenders use your CIBIL score to assess your creditworthiness, and a low score could result in higher interest rates or even loan rejection. 

With a strong CIBIL score, you can get easier access to pre-approved loans. You may also qualify for premium credit cards with better rewards. Additionally, a higher score can increase your chances of securing larger loan amounts with more favourable terms. Hence, remember to make it a priority to improve your CIBIL score. 

Conclusion 

Now that you know the importance of maintaining a good credit score, make sure to follow the tips above to improve your CIBIL rating. Remember to be patient and consistent and build long-lasting financial habits that can help you maintain a good score for the long term.