Keeping yourself updated of your CIBIL score is one thing while you are looking for a new credit line. If your score seems not very satisfactory or incapable of getting you a new credit facility, you can always think of making it better with time. A minimum period of 3-6 months is required to see a change in the score. However, what score is a good one? What can you do to improve it?
1. What score is a good CIBIL score?
A credit score ranges from 300 to 900 where any score around 300 states that you have not managed finances well in the past. Such a score will give a negative impression on you to the lenders saying you have not paid back the loans on time in the past. Lenders may not want to give you a new loan when you have not paid the previous loans properly.
On the flip side, a score near 900 states that you can be trusted with money and improves your chances of getting a new credit facility. Lenders will be more than happy to start a new transaction with you. You may also get the best deals in terms of the interest rate. Any score above 750 means you can manage money well.
2. What measures should be taken to improve the score?
There can be many reasons for you to miss the payments on time, i.e. you could be at a tough phase, forgot the last date of payment, or crossed the credit limit unknowingly. These issues can be resolved and the score can be improved.
Do not fall back in paying your loan/credit card bills on time even if you are busy or forgetful. Set a reminder on your smartphone for a minimum of 4-5 days before the due date. This rings an alarm without fail so that you don’t forget the payment. If you continue paying the bills on time for a period of 6 months continuously, it can make a difference in your credit score as CIBIL considers timely payments as an important factor in deciding the score.
Using credit cards to pay for everything you purchase may sound fancy, it may also get you a handful of reward points/cashback. But, it is recommended to keep the credit utilisation ratio within 30% or less of the available credit limit on your card. This rule can have a positive impact on building up and managing your credit score. A low-balance credit card usage history reflects a healthy CIBIL score.
If you find yourself crossing the monthly credit limit on your credit card transactions and if you think the transaction amount cannot be reduced, you must approach the bank and ask for an increase in the credit limit. Over-utilising the credit card will make a dent in your credit history and score.
Another advantage of getting an increased credit limit is that the credit utilisation will reduce as compared to the available limit. This is a good indicator that you have control over your expenses and can give you an edge in terms of credit score. However, you must not go overboard and spend beyond your repayment capacity.
You can also request the bank for a decrease in the credit limit if you are just holding on to a card to stay on par in terms of credit score. If you have multiple credit cards from the same bank, your actual credit limit will be distributed among the cards. In this case, choose the proportion of credit limit based on your usage statistics to make it profitable.
If you are going through a hard phase and unable to pay your loans/credit card bills on time, don’t just stay quiet. It is necessary that you visit the bank and communicate your hardships to let them know why you haven’t been able to pay the instalments on time.
If you have had a long, well-maintained relationship with the bank, the bank will analyse your situation and give you leeway in deferring the payments. The bank may do some adjustments such that missing payments won’t hamper your credit score.
Your financial behaviour may not always be the reason for a lower credit score. There may be errors in your credit history information leading to a lower score in the report. Verify your CIBIL report for errors; if you find any, you can dispute it. The authorities will verify the details and make the necessary changes in your report. A mistake in the spelling of your name or a missing/additional transaction can flip the score upside down.
With time, you would have bought high-end credit cards and stopped using the first, basic card you had. Some people may think it is better to close the credit card account since it is not being used. However, this decision can affect your credit score. The credit rating agencies and lenders look at this act as if you are incapable of managing different credit lines.
It is recommended to hold on to all the credit cards you own even if it means to make a transaction just for the sake of formality to keep your card operational. The number and types of credit facilities you are managing matters in improving your credit score.