Five steps to improve a poor CIBIL score

Do not panic if you have a poor credit score. Do not live with the fear of having an important loan rejectd by the lender because of a poor credit score. Here's the solution for your woes

So, you have requested for your CIBIL score and CIBIL report and now find that your CIBIL score is below the level of 750. Your first reaction is to panic as you foresee your plans to apply for a loan going kaput! But worrying won't get you anywhere! What you need is a contingency plan to increase your CIBIL score.

Your CIBIL score being the measure of your creditworthiness, a low CIBIL score is indeed reason enough to worry. A lender may refuse to let your loan application pass on account of a low score. In such a situation however, there is no point worrying. What you need to do is to put your plans to borrow on hold, and take concrete action that will help you rectify your score.

Here are five steps that will lead to a rectification of your score and thus lead to the overall improvement of your credit health.

1. Check your credit card balance

If there is a substantial outstanding balance on your credit card, you can be pretty sure that it is the main culprit pulling down your credit score. In order to improve your credit score, this is the first aspect that you need to look into. Give the idea of liquidating some assets to repay your credit card outstanding balance some thought. Alternatively, if you have a family member or a friend who you think can help you out, you may even consider taking a short term loan from him temporarily and use the funds to clear your outstanding balance. Once your credit card balance is cleared, the credit card issuer will inform CIBIL about the same and this will result in the improvement of your CIBIL score.

2. Maintain 30 per cent credit utilisation

This is an important aspect that people often tend to ignore. If your CIBIL score is low, find out whether your credit utilisation (the amount of credit you have availed of vis-a-vis the total credit that you are eligible for) is high. It is financially prudent to keep your total credit utilisation below the level of 30 per cent.

If your credit utilisation is at 50 per cent and above, it may prove to be detrimental to your score. Try to repay your credit card outstanding in full as soon as you can and bring your credit utilisation below the level of 30 per cent.

3. Enhance your total credit limit

If you want to bring down your credit utilisation, you may want to enhance the total amount of credit. While it may be near impossible to get a new credit card with a poor CIBIL score, you may check with your bank or credit card issuer whether it is possible to enhance the credit limit on your existing card.

If your request is sanctioned, do not take it as a green signal to spend more. This will have quite the contrarian effect, taking up your credit utilisation rather than reducing it.

4. Timely repayments

This is a golden rule to keep your CIBIL score intact. You must ensure that you are making all repayments on the credit you have availed of on time. Do keep in mind that all of these repayments on the loans you may be servicing or any credit card that you are using must be made within the stipulated time frame. Even a single missed payment may bring your CIBIL score crashing down.

5. Errors on your CIBIL report may be the culprit

What happens when in spite of maintaining good credit behaviour by making all loan and credit card outstanding payments on time, your find that your CIBIL score is low? In such a case, go through your CIBIL report carefully and check for erroneous entries. Sometimes there may be some typographical error or a broader systemic error that results in a wrong data entry under your name.

You may therefore find that a loan account may still be displayed as open in your CIBIL report whereas you may have repaid it in full more than six months back. In such a case you will be required to raise a dispute with CIBIL.

Once you have raised a CIBIL dispute, CIBIL will route it through its redressal department that will get in touch with the concerned lender. If the lender agrees that there has been a mistake on its part, it will re-send the correct information back to CIBIL, and the changes will reflect in your CIBIL report shortly. But do bear in mind that the entire procedure takes a maximum of 30 days.

As you may have gathered by now, the attempt to keep your CIBIL score high is a continual process. If your CIBIL score has taken a plunge as a result of unpaid dues, you will have to work hard to make those repayments on time. This may mean cutting some corners making attempts to increase your income by taking up some extra jobs, but once the results start impacting your CIBIL score, your efforts will seem worth it!

Photograph: GotCredit/Creative Commons

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.