If you have a CIBIL score that is below the satisfactory level of 750, make a resolution this day of spring to enhance your CIBIL score. Here are some ideas that will give your CIBIL score a boost.
Holi, the festival of colours is knocking at our doors. It's time to celebrate the season of spring and welcome the new. Holi is an opportunity to take a re-look at your life and bring in some fresh perspective to make your life a better one. As you celebrate the festival of Holi with your loved ones this year, how about taking a fresh look at your credit behaviour and see if you can improve your CIBIL score?
Check your CIBIL report for errors
First things first, check out your CIBIL report. Are there any errors in it that are dragging down your score? These errors can be anything from a simple wrong entry, like a loan account that you have already closed from your end but has not been updated by the bank to CIBIL. If there are errors and discrepancies like this, you need to report the same to CIBIL. Your issue will be routed through the dispute resolution cell that will contact the concerned lender and upon the verification of your information, the rectified status on your loan will be updated to your CIBIL report. The entire process can take up to a maximum of 30 days, so you need to report an error to CIBIL, as soon as you come across one.
Are you making timely repayments?
This is the most important factor that determines your CIBIL score. Therefore, you must ensure that you are making timely repayment on all the credit lines that you have availed of. Even a single late payment on a loan or a credit card may have a negative impact on your CIBIL score. The best thing to do therefore is to automate your payment process, by activating ECS request on various payments, so that you do not have to worry about a missed payment date each and every month. Needless to say the account from which your payments are to be deducted need to be replenished on time.
Credit card outstanding
More often than not, credit cards are responsible for bringing down the CIBIL score of an individual. If used well, credit cards can prove to be a blessing and can be instrumental in building a good credit record; but if you go overboard with your usage, you may end up in debt pile and a poor CIBIL score. Thus if you have a large credit card outstanding, the first thing you need to do is to cut down your expenses, dip into your savings or simply borrow the money from family or friends to get rid of your credit card outstanding loan.
If you are using multiple credit cards and the debt on each has gone overboard, you may even think of a debt consolidation plan. A debt consolidation plan is one in which you take one large loan and service it instead of paying multiple loans especially on your credit card. Credit card loans should be treated as top priority when it comes to repayments.
Interest rates on credit cards are the highest when calculated on an annual basis, and thus prove to be the costliest form of credit. The cardinal rule of credit card usage is thus spending money in small amount and repaying the outstanding amount in full each month.
Check your credit utilisation
If there are no errors on your CIBIL report, and if you have not been reckless with your credit card usage and are making payments on time, you should take a look at your credit card usage pattern. See if your credit utilisation is between the range of 30-40 per cent of your total credit limit. Credit utilisation or the total amount of credit you use as against the total amount made available to you, has a key role to play in the computation of your CIBIL score. So if your credit utilisation is above 40 per cent, take the necessary measures to bring it down.
Do not be credit hungry
If you intend to improve your CIBIL score, you must not apply for loans or credit cards in quick succession. Every time you make an application for a credit line with a lender, it puts in a request to check your CIBIL score. This kind of inquiry is called a hard inquiry.
Every time there is a hard inquiry on your CIBIL report some points are shaved off your CIBIL score. Thus making too many loan or credit card applications in quick succession will not only shave off your CIBIL points, it will also make you seem credit hungry. A lender is wary of borrowers who seem credit hungry and may reject your application on this count.
Maintaining a high CIBIL score is all about financial discipline. Just as you take care of your health with a proper diet and optimum exercise, maintaining financial discipline is crucial to your financial health. So if you are not doing it already, Holi is the right time to turn over a fresh leaf!
Photograph: Thomas Hawk/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.
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