What is CIBIL and How to Improve it? 10 Powerful Ways

CIBIL Score
CIBIL

I know you have heard this word many times and before any complicated meaning here is the simple definition for you. CIBIL is the information database of your credit. CIBIL stands for The Credit Information Bureau (India) Limited.

It measures the borrower’s credit and its repayment history. You might have seen the CIBIL score in the criteria when you applied for a loan or credit card. CIBIL is India’s oldest credit rating agency which is now partnered with Trans-Union.

It is US based and now together it is known as TransUnion CIBIL Ltd. When you take a loan or any borrowing, your repayment methods form a history known as the CIBIL score.

It is highly important that you maintain a good score. But fortunately or unfortunately, some people do not have good score.

In this article we are going to discuss a detail version of CIBIl. We will elaborate its uses and will also tell you some powerful tips to improve it as soon as possible.

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Where is CIBIL used?

It is used at the time of taking a loan or borrowing. Your lenders will check your credit history/ CIBIL score when lending you money. By reviewing your score your lender try to understand your credit and repayment history. Lender mostly assess it to analyse the risk associated with the customer.

If you have a good score score, it is a positive signal to lend your money or make a credit card. But in case score is very low, lender would avoid you to give you loan or credit card.

This score is very important as it is proof that you hold the capability to pay back the money you took from the lender. Let’s look at some more important events where CIBIL Score is used.

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1- Fixing the Loan Amount

Apart from deciding if you will be granted a loan or not, a CIBIL score is also used to decide the loan amount. A lender will not give you the amount of loan you demand, but they will check your income, expenses, and ongoing EMIs.

Your monthly fixed expenses and ongoing EMIs will be subtracted and the remaining portion will decide how much new EMI can you afford. Based on this calculation usually the loan amount will be decided.

banks/financial institution always try to understand your currentrepayment capacity before they approve a loan to you. If you repayment capacity doesn’t suit them, they can decline the approval.

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2- Telecom Operating Firm

You all have got calls for loans and you might have wondered how they are sure about your capacity to pay a loan.

Telecom operators actively look for your CIBIL score and immediately determine the amount of credit to be given.

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3- Banks

Your bank and other financial institution often take a look at your CIBIL score to provide you with better services. To maintain better relations with their customers, banks will check the CIBIL to understand the credit history.

If you lie more in debt ratio, they can also increase your credit limit. Do you know now how important is your CIBIL score? I bet now you want to improve your CIBIL score now. Now we will know how you can improve it But before it you should have a look on a important chart.

Here is a chart for you to keep up with your CIBIL Score:

CIBIL Score RangeRating Per Range
300 – 450Poor
450 – 600Average
600 – 750Good
750 – 900Excellent
CIBIL Score Chart

10 Powerful Tips To Improve CIBIL

In the above few paragraphs, we discussed about the introduction and its uses. But now will we discuss 10 most powerful tips to improve your score. Let’s start with the most actionable to the best option in which you can boost your CIBIL.

1- Start Paying Your Bills on Time

This is by far the easiest and to-do task you can do to initiate the first step. When you start paying your bills and EMI on time, your credit score would start improving significantly.

In our busy life we often tend to forget the payment dates and to make up for this we have many apps that help us remind them.

One such app is Fullerton India which reminds you and even pays your bills if you enable autopsy. Payment of dues on time builds a credit history over time, building a healthy credit score.

And if you don’t want to download any apps or tool on your phone, you can simply set a clock reminder in your phone. At least you would not miss your due date.

Sometime, people have money to pay their dues but due to their busy schedule, they miss it.

2- Go through your Credit Report

Have you read your performance report in your work? I am sure you do check to improve where you are lacking. The same goes for the credit report.

Check your credit report for two main things. The first thing you see is if you can have any particular credit cards or payment sectors, whose delayed payments are affecting your report. The second thing you can check is your overall credit report.

Identify what is taking your score down and work on improving it. You can check your credit score as many times as you can. Frequently checking your credit score does not lower it as it is counted in the soft inquiry.

However, if any lender or credit card does it, it affects your credit score. You will see it in the “inquiry” so you can understand what can affect you and ask for action against it.

Both are very different things. You must understand the difference between a soft enquiries and hard inquiries. And you should avoid uneccesory hard enquiries.

3- Rectify Errors in a Credit Report

Your credit score can also be harmed due to errors furnished in the report. When you check the report and see an error, you can raise a dispute against it.

You can raise a dispute via mailing the credit reporting company. Your dispute includes the error you find, along with the documents supporting the dispute. Your new corrected CIR will take around 30 days to complete the process.

You are also timely updated with the status of your report. It is your responsibility to raise a dispute against errors affecting your CIBIL.

4- Do Not Apply Too Frequently for Credit

Applying for credit over and over again after getting rejected, might affect your credit score. When you apply for a credit and it is rejected, the rejection application stays in your history and forms a part of a low credit score.

Understand here that your reason for rejection is not hurting your score but the inquiry made by your lender is. We spoke about it earlier that too many inquiries from lenders can lower your credit score so the best you can do is wait for your score to improve before applying for credit from another lender.

5- Keep Unsecured Loans Balanced

If you are someone who takes frequent unsecured loans then it seems like a negative mark and may hurt your credit score. To deal with this, keep a balance of secured and unsecured loans.

A hard inquiry on an unsecured loan affects your credit score. Personal loans and credit scores are types of unsecured loans.

I would like to add one more important thing here and that is avoid taking loan at very high interest rate. If you are taking loans at very high interest rate, it will decrease your repaying capacity because of higher EMI amount. It will be easy for you if you have lower interest rate and small EMIs. However, you should not go for lengthy tenure.

6- Take Repayable Loans

This is a common mistake beginners make in building a CIBIL score. Your potential is recognized when you take a test. So, to build a credit score, if you have to take a loan.

This advice does not mean you take every big loan, but during cold wallet days, repayable loans can be taken. Timely payment of such loans makes your CIBIL score strong. Personal loans have all the aspects that are counted to make a credit report.

Payment history, length of credit history, credit usage, credit mix, and types are all the factors in the personal loan that contributed to the report.

7- Utilizing the Credit Limit

Not using a credit card at all to avoid delayed payment, will only do harm and no good. Use your credit card limit of up to 30% and optimize your credit utilization limit.

Utilizing your credit card limit of up to 30% and repaying it timely is considered a healthy practice You can also gradually increase your credit limit by talking to your financial institution. This is also a sign that you can have more credit and repay on time.

8- Maintain Consistency

Your expense pattern and repayment are all maintained in your credit report. A credit report is built over time so make sure you maintain consistency. When you pay your EMIs and card due on time regularly, it helps to improve your credit score sonner.

Keep tracking your reports, see where improvements are needed, and rectify the errors. A CIBIL score is not to limit your happiness or over-credit but to build a habit.

You must pay your credit dues before the due date to maintain your credit score. Do you know that this is also building sound financial planning for your future. Financial planing is very important for good financial management.

9- Avoid the Risk Zone

It is very easy to identify any risk you make in your payments. Sudden huge and fewer payments than usual, or missing out on credit payments are the red signals that affect your score.

These risks are early identified and can create a problem. Make sure you have a smooth repayment every month to be away from this zone.

10- Credit Accounts Active for Worthiness

A common practice followed by businesses is keeping the good old credit account active. This forms as proof of your past credit history that adds up to your credit report.

Keep your past records of credit in your credit report which were timely completed within the given timeframe and proper way.

Conclusion

The common mistake people do is do not understand the ethical way to build a CIBIL score. Thankfully, you will now know the right ways. Make sure you always have a credit score, not below 550. However, I would suggest that you maintain as good as you can.

If you score is poor or below average, don’t worry about it. Being in tension is not the solution. You just need to analyse your CIBIL report and find out where is the problems and what are the ways to improve it.

Start working on it. I know that you can’t change anything sudden but you give some time and apply some powerful ways to improve it, then definitely it is possible.

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