What exactly is a CIBIL score?

A creditworthiness score is a three-digit number that shows your creditworthiness. It ranges from 300 and 900. The closer your credit score is near 900, the more likely you are to get approved for a loan or credit card. A higher score indicates that you have been a responsible borrower with a positive credit history. A credit score of 750 or higher, by general standards, grants you faster access to loans and credit cards.

What factors influence your CIBIL score?

The score is determined by four major factors:
30% Payment History
25% credit exposure
25% credit type and duration
20% Other Factors

What are the factors influencing my CIBIL score?

The Credit’s Length

A long credit history can help you raise your score. It implies that you have prior credit management experience. Lenders like lending to persons with a strong credit history since it makes judging you as a borrower easier. As a result, it is best to avoid cancelling old cards because you will lose your extensive credit history and good payback behaviour.

Total Debt

The total amount of debt you hold at any given time has a significant impact on your CIBIL score. The credit utilisation ratio is the quantity of credit you use in relation to your total credit limit. To acquire a high cibil score, you should always keep your credit utilisation percentage low. According to experts, you should only utilise up to 30% of your whole credit limit.

Credit Type and Duration

It is critical to have a good credit mix. Maintaining a balanced mix of secured and unsecured credit will help you improve your CIBIL score. You should avoid having too much secured or unsecured credit and instead attempt to keep a decent balance of both.

History of Payment

Payment history is one of the most important variables influencing your CIBIL score. You should make timely payment of credit card bills and loan EMIs a priority. Avoid paying bills late at any moment because it will lower your credit score. A 30-day delinquency can reduce your CIBIL score by 100 points, according to a recent CIBIL analysis.

Credit Inquiries Total

Avoid conducting several credit queries in a short amount of time. When you request for a loan or a credit card with a bank or financial institution, the lender will pull your CIBIL report. This type of inquiry is known as a “hard inquiry,” and it lowers your score. Multiple credit inquiries can lower your credit score. As a result, it is best to seek credit only when absolutely necessary. Meanwhile, checking your own credit score or report is referred to as a “soft inquiry.” You can check your report as many times as you want, but it will have no effect on your CIBIL score because soft inquiries are not recorded on your report.

How can you raise your CIBIL score?

To raise your CIBIL score, you must consistently pay your bills on time and be a responsible borrower. Here are some suggestions to help you increase your score.

Keep your credit utilisation ratio low

As previously stated, you should preferably not spend more than 30% of your overall credit card limit. This is especially significant if you plan to apply for a mortgage in the future. Banks will look at your debt-to-income (DTI) ratio when you apply for a property loan. This ratio compares your entire debt to your total income. Banks are more likely to reject your application if your debt surpasses 50% of your income. Another reason to keep your credit utilisation percentage low is to avoid appearing credit hungry. If your credit lines cover most of your spending, you will appear as a borrower who is unable to handle their expenses on their own.

Use credit lines wisely

At the end of the day, any money borrowed from a credit line is borrowed money. Depending on the type of credit line and your repayment history, you must reimburse it to your lender, with or without interest. So, use your credit card, loan, or any other type of borrowing with caution. Also, never borrow or use more than you can afford to repay. This could lead to you falling into debt.

Close accounts instead of settle

If you have previously failed on payments, it will be shown in your credit history and will lower your CIBIL score. Instead of settling, make sure to pay up the unpaid amount and cancel the account. You must confirm that the account is marked as ‘closed.’ It is also advisable to obtain a formal closure certificate from the lender for the account.

Avoid late or missed payments

In addition to being charged late payment fees, your repayment behaviour will be recorded to credit bureaus, lowering your credit score. To stay organised, set up payment reminders or due date alerts if you have numerous credit card payments and loan EMIs to make. This way, you’ll never forget to make a payment. You could also work with your lender to set up a direct debit arrangement in which your payments are automatically taken from your savings/current account on the due date. You’ll never have to worry about forgetting due dates or making late or missed payments again.

Examine your credit report

To understand your credit health, you should review your credit report on a regular basis. This should be done to guarantee that there are no inaccuracies on your credit report relating to your credit accounts. This is significant since any erroneous information on your report may lower your score through no fault of your own. It is critical to discover and correct such problems as soon as possible.