4 Tips To Improve Your CIBIL Score Immediately

Credit score, though it has been around for a while, has become popular quite recently. Yet, a large chunk of the population does not know about credit scores or the fact that they have one.

Suddenly, one day, when applying for a loan, the bank tells them their credit score is low and that their loan application has been rejected due to that.

What is a CIBIL score?

A CIBIL score is like a grade that shows how good you are at managing money. It ranges from 300 to 900, with higher scores indicating better money management. A score of 750 or higher is considered good, but if your score is below 600, it's not so good.

When you want to borrow money, banks and lenders check your CIBIL score to decide if you're good at repaying loans. If your score is low, most lenders might not want to give you a loan. If they do approve your loan, they might charge you more interest.

Hence, before applying for a loan when your CIBIL score is low, try to improve your score first. A good CIBIL score makes it easier to get a loan at lower interest rates.

How does a CIBIL score affect eligibility for loans?

A CIBIL score plays a crucial role in determining one's eligibility for loans. Financial institutions rely on this credit score to assess an individual's creditworthiness. A higher CIBIL score, typically above 750, signifies responsible financial behavior and increases the chances of loan approval. Lenders are more inclined to offer favorable terms, lower interest rates, and higher loan amounts to individuals with better CIBIL scores. On the other hand, a low CIBIL score can lead to loan rejection or higher interest rates. Therefore, maintaining a good CIBIL score through timely bill payments and responsible financial management is important to improve loan eligibility and secure better borrowing opportunities.

What happens when you have a low credit score?

When you have a low score, it means that you are a risky customer and banks are usually not willing to give you a loan. A credit score is primarily based on how well you have repaid your previous loans, whether you have defaulted or pre-closed any loan, what types of loans you have taken and how much of your income goes in repaying loans.

So, now if you have a low score and still need a personal loan, you can find some lenders who will be willing to give you the money, but they usually charge a high rate of interest. Some lenders even charge up to 30-40% p.a., which is very high.

How to improve a low CIBIL score

Improving your low CIBIL score is crucial for securing better financial opportunities. To boost your CIBIL score, start by paying your bills on time, as timely payments account for a significant portion of your score. Reduce your credit card balances and maintain a low credit utilization ratio, ideally below 30%. Avoid opening multiple new credit accounts in a short span, as it can negatively impact your score. Regularly monitor your credit report for errors and dispute any inaccuracies promptly. Lastly, demonstrate responsible credit behavior over time, as a consistent, positive credit history will gradually raise your CIBIL score. By following these steps, you can enhance your CIBIL score and open doors to favorable lending and financial options.

How to get a personal loan when you have a low CIBIL Score?

Though it may be a challenge, with a low CIBIL score, you can get a personal loan. There are many new emerging fintech platforms and NBFCs that will offer you a loan but might charge a higher interest rate.

How to choose a lender when you have a low credit score?

Always research the lender and see if they are credible. Don’t fall prey to scammers who steal your data and never disburse your loan. Some scammers may even offer you great terms and conditions, but they will make you pay some fees up front. You will never see them or your money again.

Ensure you know the correct interest rate that you are getting. Some lenders may give a wrong picture by showing their interest rates in terms of months and not years. So, 30% per annum is shown only at 2.5% per month. Whereas a regular bank will charge you only around 14% p.a. which is only 1.66% per month. When you calculate interest over a long period of time, it amounts to a significant difference.

How to improve your credit score?

If you are not in a hurry to take a loan, you can work on improving your credit score immediately. This will ensure that you do not get rejected for another loan application ever. Here are some tips that can help you improve your credit score.

If you have outstanding balances on your credit cards, work towards paying them off. Pay off credit card bills in full every time. You shouldn’t resort to paying only the minimum due.
Stop spending more on your credit card till you have cleared your bill in full. After that, you should spend only the amount you can pay back in full every month.
If you do not have a credit card, and no lender is willing to give you one, you can opt for a secured credit card. Open a small fixed deposit with the bank and avail a credit card for up to 80% of this deposit. Use this card wisely by spending only about 30-40% of the available credit limit. Payback your bills on time and in full. Your credit score will get a solid boost.
Don’t resort to cancelling credit cards. This means you will reduce the total available credit which can be bad for your credit score. If you have multiple credit cards and wish to close all of them and keep one, you can try transferring the credit limit to one card. This may be possible only if the cards are from the same bank.
Don’t keep applying for loans and getting rejected. Too many loan applications can make you seem credit hungry and again your credit score takes a hit.

Even if you have a low credit score now, don’t worry. You can always pull it back up. Keep your score above 700 to ensure you always get your loan application approved!

FAQs

What is the minimum CIBIL score I need to avail a personal loan?
- The minimum CIBIL score required to avail a personal loan can vary from one lender to another. However, most financial institutions in India typically look for a CIBIL score of around 750 or higher to approve a personal loan application.
How do I check my CIBIL score?
- You can check your CIBIL score by following these steps:
- Visit the official website of the Credit Information Bureau of India Limited (CIBIL), which is now known as TransUnion CIBIL.
- Navigate to the "Get Your CIBIL Score" or "Get Your Credit Score" section on their website.
- Select the type of credit score report you want (e.g., CIBIL Score and Report, CIBIL Rank and Company Credit Report, etc.)
- Fill in the required personal and financial information, including your name, date of birth, PAN card number, contact details, and so on.
- Review the information you provided for accuracy and completeness.
What is a good CIBIL score?
- Pay the required fee for obtaining your CIBIL score. The fees may vary depending on the type of report you choose.
- After payment, you will receive your CIBIL score and credit report via email or SMS, depending on your preference.
- Alternatively, you can also check your CIBIL score through various credit monitoring apps and websites that provide credit score services in partnership with credit bureaus like CIBIL. Some banks and financial institutions also offer free access to your credit score as part of their services.
- It's essential to periodically check your CIBIL score to monitor your creditworthiness and identify any discrepancies or potential issues on your credit report that may need attention. A good credit score is crucial for obtaining loans and credit on favorable terms.
I have never taken a loan or a credit card. Will I still have a CIBIL score?
- If you have never taken a loan or a credit card, you may not have an extensive credit history, and therefore, you might not have a CIBIL score. Your CIBIL score will show as NA/NH, indicating that it is either "not applicable" or has "no history."
What is a good CIBIL score?
- A good CIBIL score typically falls in the range of 750 or higher. A CIBIL score of 750 or above is considered favorable and indicates a strong credit profile.
What benefits will I get if I have a good CIBIL score?
- With a good CIBIL score, you are more likely to be eligible for loans and credit cards with favorable terms, including lower interest rates and higher credit limits.
Why is my credit score going down when I pay on time?
- Your credit score may drop even if you pay on time due to factors like high credit card balances, late payments on other accounts, closing old accounts, opening too many new ones, negative information, limited credit types, or errors on your credit report. To maintain a healthy score, monitor your credit utilization, ensure on-time payments across all accounts, and check your credit report for inaccuracies regularly.
How long does it take to see improvements in my credit score?
- Improving your credit score takes time and depends on various factors. Timely payments and reducing credit card balances can yield quicker results, typically within a few months. Negative items take longer to fade, and a longer credit history helps over years. Credit inquiries have a short-term impact, while diversifying your credit mix and correcting errors can also improve your score gradually. Remember, patience and consistent responsible credit behavior are key to seeing your credit score rise.
Will applying for multiple loans impact my credit score further?
- Yes, applying for multiple loans in a short time can impact your credit score negatively. Each loan application triggers a hard inquiry, temporarily lowering your score. To maintain a healthy credit score, space out loan applications and apply for credit only when necessary.