How to build a perfect CIBIL score

Here's the formula and it is not too difficult to implement.

Have you ever wondered why there is such a clamour of late to maintain a high CIBIL score? Is all the information you are absorbing about CIBIL score and CIBIL report confusing? Do you know how to get the perfect CIBIL score?

What is the formula for success when it comes to achieving the perfect CIBIL score?

Well, you may be happy to know that it is not difficult at all, and you may just be a few steps away from the perfect CIBIL score. 

The importance of your CIBIL score

Your CIBIL score plays a very important role in your life today. Unless you have a perfect CIBIL score of 750 and above, it is unlikely that you will get access to credit when you need it. The Reserve Bank of India has made it mandatory for all lenders to look at the CIBIL score of any individual as a part of their credit assessment process. This means every time you apply for a new loan or a credit card, the lender looks at your CIBIL score to assess whether or not you are credit worthy.

In fact, your CIBIL score is not just relevant to your possibility of getting credit but may also impact your employment prospects. Corporations these days are increasingly asking for probable candidates to submit their CIBIL report along with other documents to assess whether or not they are responsible with their own credit and thus may prove to be an asset to the company by way of trustworthiness and responsibility.

Thus, there is no doubt about the fact that maintaining a high CIBIL score is of paramount importance. A perfect CIBIL score of 750 and above will open up doors of credit when you need it the most.

But what must one do to achieve it? Well here are five steps that will take you closer to your goal.

1. No late payments

This is the numero uno rule when it comes to using credit. Whenever you have availed of a loan or a credit card, make sure that you are making timely payments or keeping your accounts furnished for an EMI to be deducted. Even a single late payment of 30 days and above will impact your CIBIL score negatively.

In fact, with CIBIL considering mobile and other utility payments as a part of credit score assessment you must remember to pay all your bills on time too, to have the perfect CIBIL score.

2. Credit utilisation

This is another important factor when it comes to your CIBIL score. Financial prudence says that your total credit utilsation or the amount of credit you are using as against the total amount of credit been made available to you should not exceed 30 per cent. This is a discipline you must maintain when you are using your credit cards. If used judiciously, your credit cards can build your CIBIL score, but if you tend to go overboard and end up overspending on it, you not only run the risk of lowering your CIBIL score, you may end up in a debt trap that may be difficult to get out of in a hurry.

3. Mix of credit

You must keep in mind that when it comes to your CIBIL score the type of credit that you are using also matters. Having too many unsecured loans such as too many credit cards or personal loans will impact your CIBIL score negatively. On the other hand, if you have a good mix of credit, say a home loan and couple of credit cards or a vehicle loan and a personal loan, i.e a mix of secured and unsecured debt, your CIBIL score will remain high.

4. Too many hard inquiries

If you are in the habit of applying for every new credit card that come your way or checking out a loan for its prospects by making an application for the same, you need to stop doing so immediately. Each new application for credit results in a hard inquiry in your CIBIL report as the lender you have applied to checks out your CIBIL report. Too many hard inquiries on your CIBIL report does not augur well for you as it portrays you as 'credit hungry' and makes lenders wary of lending to you.

5. An error free CIBIL report

CIBIL has to handle a large amount of data that comes in daily from the lenders who send information about their loan and credit card accounts to CIBIL. There is no way for CIBIL to apply a filter and see that all the information that is coming in from the lenders is correct. The onus is therefore on you to check whether the information that is relevant to you is correct. Thus it becomes very important for you to keep a strict vigil on your CIBIL report by checking it out at least once or twice annually. This is to ensure that your CIBIL report remains error free and your financial health is up to the mark

Thus as you can see, attaining the perfect CIBIL score is not at all difficult. By just maintaining financial discipline and consistency in good usage of credit you can ensure that your CIBIL score remains perfect at all times. 

Photographs: 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.