Your CIBIL score is a three digit number, in the range 300-900. In today’s date this number has assumed immense significance with banks unwilling to lend to anyone who does not have a score above 750. It is a good financial practice for you to make a constant effort to improve CIBIL score, as the Reserve Bank of India, the central banking authority in the nation has made it mandatory for all lenders to refer to the CIBIL score as an integral part of their credit assessment process. Therefore it makes sense for you to enhance your credit score, if you are slightly below the 750 mark, or want to improve CIBIL score from the level of 750. If you are wondering how to increase your CIBIL points, here are some quick tips that you will find useful.
Keep a check on your credit utilization
In financial parlance, credit utilization refers to the total amount of credit you are using vis a vis the total amount of credit that is available to you. If you want to increase credit score, you must ensure that the total utilization of credit remains below the level of 30%. So, in other words if the limit on your credit card is Rs 1lakh, do not go ahead and spend all of it each month. In fact, when your credit limit is Rs 1 lakh, you should use not more than Rs 30,000 each month and repay the outstanding balance in full within the billing cycle. Credit utilization is an important factor that impacts your CIBIL score, so keep a strict check on it. Enhanced use of credit, indicates a heavier repayment burden and can bring your score down.
A good credit mix is key to a good CIBIL score
In order to increase credit score, you must have a good mix of secured and unsecured loans. Home and auto loans can be categorized under the secured category while, personal loans and credit cards feature under the unsecured category. If your credit portfolio has a larger quantum of unsecured loans, your CIBIL will reflect the fact that your repayment burden is higher and may be viewed as a negative by lenders.
Make all your repayments on time
Whatever credit you have availed of, be it credit cards, home, auto or personal loans, make sure that strictly adhere to the repayment schedule. Even a single missed payment can prove to be detrimental to your CIBIL score. With credit cards you have to be extra cautious, as you can quickly go over the top with credit card usage. Do ensure that whatever you spend on your credit card, you repay in full within the billing cycle. If you already have a large outstanding on your credit card, try and clear it out as soon as you can. More often than not, judicious use of your credit card can be the best way to enhance your credit score.
Do not close old credit card accounts
If you have moved on to new credit card, because it offers a better rate of interest, do not be in hurry to close the previous one. Chances are you have been using it for a while and it bears witness to the fact that you have been responsible with your credit in the past. The length of your credit is also one of the factors that impact your CIBIL score, so do not cancel or close old credit card accounts. Besides the closure of one credit card also amps your overall credit utilization, thus impacting your CIBIL score negatively. If you must close an unwanted card, do it slowly over a period of time, while maintaining a good repayment track record on your new card and enhancing the credit limit on it. This is keep your CIBIL score in tact over the long run.
Do not over leverage yourself
That fact that credit is readily available today is an undeniable fact, with lenders vying with each other to get customers into their fold. If you have a good CIBIL score of 750 or slightly above, chances are that you receive calls from relationship managers of banks who want to avail of a loan or a credit card almost every single day. But just because you are eligible for a card or a loan, does not mean that you should avail of one. For instance, if somebody is offering you a personal loan, do not avail of it for the sake of it and go on a family vacation with it! Credit should be availed of only when you require it and you are sure of your repayment capabilities.
Maintaining good credit behaviour is a by-product of good financial habits. If you follow the above mentioned tips carefully and are careful with your finances, there is a slim chance of you going wrong with your CIBIL score. In fact following these tips are tried and tested ways to improve your credit score fast. Lastly, but not the least, make it a practice to purchase your CIBIL score and CIBIL report at least twice a year, so that you do not get any nasty surprises, by way of discrepancies in it, just when you are planning to apply for a loan. Your CIBIL score, just like your medical records must be kept up to date and in ship shape to ensure that your financial health is in order.
One needs to take into account that the improvement of scores is a slow process and shall take its own course. Thus it becomes imperative for one to keep checking the scores from time to time. There are various sites that can help one get a free CIBIL score and one shall not be required to pay every time.
Written by Arun Ramamurthy, author of “Unlock the Power of Your Credit Score” : India’s first book on credit scores.
CA SHIVANI AGARWAL
www.akvassociate.com
