Anyone who’s ever applied for a loan knows how crucial a CIBIL score is. It makes or breaks your opportunity to qualify for the loan. CIBIL score is how banks or lending institutions rate your creditworthiness and decide if you are the right candidate for the loan or other credit-based financial services.
Lenders classify customers based on their credit score and, accordingly, offer risk-based rates on the loans. So, higher the credit score, lower the risk for the lender. The lower the risk, lower the interest rate on the loans and higher the loan amount.
Now let us understand how your credit score is calculated and the steps you can take to maintain it high to procure loans at lower interest rates.
How is CIBIL Score Calculated?
CIBIL score is calculated taking into account several factors such as your payment history, period of payment history, the debt amount, credit applications, credit mix, repayment behavior and more. While each factor has a different weightage, they all play a crucial role in determining your overall CIBIL score. Moreover, you must constantly keep your credit report in check to ensure a good CIBIL score.
What Constitutes a Good Credit Score?
CIBIL score ranges from 300 to 900. The closer is your CIBIL score to 900, the better are your chances of acquiring a loan on your terms. While having a higher score can prove beneficial, the opposite can have detrimental effects.
A score of 300 to 549 is considered poor while 550 to 700 is deemed to be a good score. Anything above 750 is acceptable everywhere.
| CIBIL Score Range | Creditworthiness |
|---|---|
750 - 900 | Excellent |
700 - 749 | Good |
650 - 699 | Fair |
600 - 649 | Needs Improvement |
Below 600 | Immediate Action Needed |
A CIBIL score of 750 and higher increases your chances of getting quickly approved for any loan or credit card. Additionally, with a higher score you can bargain for a higher loan amount and lower interest rates. The bottom line is, a higher CIBIL score can open a world of new possibilities for you.
So here’s what you need to do to increase your CIBIL score to 800.
7 Effective Ways to Improve CIBIL score to 800
A good credit score is achieved by disciplined expenditure, timely payment of bills, appropriate financial management and prevention methods. Nevertheless, it may not be an easy task to monitor all these factors and remain perfect when you are too busy to think and plan. Consequently, a poor score may occur and the agency may rate you ‘Poor’ in the CIBIL score.
Here are some useful and effective steps on how you can boost your credit score immediately. Apply these and elevate your score to get loan approval without much hassle.
Improve Payment History
By making on-time payments of credit card and loan EMIs, you improve your payment history and this helps to increase your credit score. Even a single missed payment on your credit card or loan can impact your credit score significantly, resulting in a fall in your credit rating. Thus, maintaining a good payment history is critical to building up good credit.
Lower Your Credit Utilization Ratio
The credit utilization ratio is a significant factor in determining your credit score. To maintain a good credit utilization ratio, it is recommended that you use less than 30% of your total available credit limit each month.
The more you restrict your usage in accordance with the credit limit, the better it is for your credit score. Reaching the limit can negatively impact and lower your credit score. The best way to overcome this is to customize your credit limit by talking to your lender.
Opt for Longer Loan Tenure
It is important to note that while a longer loan term will not immediately raise your credit score, it can have a lasting effect on your credit score. The duration of the loan will determine the EMI you pay each month. Lowering monthly payments will help you repay loans without defaulting. This will also help improve your overall credit rating and make it easier for you to get loans in the future.
Avoid Applying for Multiple Credits
Taking out multiple credit cards at once shows you to be a credit hungry person, and also portrays you in a cycle of insufficient funds. This will eventually lead to a fall in the credit score. The number of loans or cards you apply in a certain period must be kept to the minimum. Most banks and NBFCs avoid giving loans to candidates with multiple credit cards as they are deemed high risk.
Instead, repay your existing loans on the cards and boost your credit score.
Don’t Close the Existing Credit Cards
The use of credit cards and debit cards can help individuals manage their money more efficiently than not using a credit card at all. If you close a credit card, it will show that you lack good financial management skills and poor economic standing. Hence it is advisable to keep the credit card open even if you do not use it as much. By doing so, you would be able to maintain a credit score above 800.
Be Disciplined in Repayment
This goes without saying. No matter what you do, if you default in your repayments, your credit score will be negatively affected. This is why you must make monthly repayments on your loans within the scheduled amount of time. Avoid late payment charges and pay your outstanding bills to sufficiently boost your score.
Credit-Mix
How will the agency estimate your credit score if you haven't taken out any loans!? Any person who hasn’t taken out a loan in the past will have no credit history and likewise a low score. A healthy mix of credit, both secure and unsecured loans, of short and long terms can help you build a strong score.
Taking out a secured loan is favorable to a positive credit score. And apply for an unsecured loan for urgent requirements. This way, your credit score will reflect a combination of secured and unsecured loans.
