How to Improve Your CIBIL Score Immediately

Understanding CIBIL

Your creditworthiness is one of the most important deciding factors for the approval of your loan or credit application, and CIBIL plays a key role in this. Short for Credit Information Bureau (India) Limited, CIBIL is one of India’s leading credit information companies that collects and maintains records of an individual’s payments related to loans or credit cards. This information is provided by financial institutions and is used to generate the individual’s CIBIL report and score. Higher scores indicate better credit history and financial discipline, improving your chances of loan approvals and favourable interest rates. Conversely, lower scores can lead to application rejections or stricter loan terms.

If you have a lower CIBIL score, it is in your best interest to try and improve your CIBIL score before applying for finance products such as a personal loan. Let us better understand this score and see how to increase your CIBIL score through practical tips.

What is CIBIL Score?

A CIBIL score is a 3-digit numeric summary of your CIBIL report, ranging from 300 to 900. The latter is a detailed record of your payment history, credit utilisation, outstanding debts, and more credit-related information. The CIBIL score shows your creditworthiness to the lenders and is an important indicator of how likely you are to repay a loan.

Since it is a credit score generated by TransUnion CIBIL, it is commonly referred to as a CIBIL score. The scores generated by other credit bureaus (Experian, Equifax, and CRIF High Mark) are typically referred to as credit scores. While the credit scores generated by all 4 bureaus are valid, lending institutions tend to give preference to the CIBIL score.

Importance of a good CIBIL score

Your CIBIL score is the numerical representation of your creditworthiness, i.e., how likely you are to repay your loan or debt back on time. Lenders, credit card companies, and other financial institutions look at this score to assess the level of risk they would be taking by lending you money or extending credit. A high score, generally 750 or above, points to a history of timely repayments, lowering the risk for the lender. As long as they meet the overall eligibility criteria set by the lender, applicants with scores of or above 750 have a good chance of getting loans with lower interest rates and flexible repayment terms. 

On the other hand, lower credit scores can indicate a higher chance of default. Even if the loan is approved, the borrower will likely have to settle for higher interest rates and stricter terms.

Strategies to improve your CIBIL score

Wondering how to increase your CIBIL score? There are many ways to improve CIBIL scores. However, it is important to remember that doing so requires consistent effort and time. It can take anywhere from 4 to 12 months to see a significant improvement in CIBIL reports. That is why, it is essential to take steps to increase your CIBIL score sooner rather than later. 

Let us take a look at some actionable tips to increase your CIBIL score.

• Check and Understand Your CIBIL Report: This is one of the first steps you can take to improve your CIBIL score. Your CIBIL report contains detailed information about your credit activities, including your payment patterns, the amount of credit you are using, and the credit inquiries you have made. Doing so will help you identify areas of improvement that need to be addressed, such as missed payments or high credit card balances. Then, you can take targeted action to improve your financial habits, which will lead to an increase in your CIBIL score over the long run. You can also identify any potential errors that might be affecting your score.
• Timely Payments on EMIs and Bills: Your payment history significantly affects your CIBIL score. Ensure you pay your credit card bills, loan EMIs, and other dues on or before the due date. Late payments or defaults can drastically lower your score. Setting up reminders or automatic payments can help you avoid missing due dates. Consistently paying your bills on time demonstrates financial responsibility and reliability, which will help improve your CIBIL score over time.
• Reduce Credit Utilisation Ratio: Another effective step to increase your CIBIL score is to maintain a low credit utilisation ratio. This ratio is the percentage of the credit used against the available limit. Ideally, you should keep your credit utilisation at or below 30%. High credit usage can indicate a higher dependency or a severe need for credit, which can negatively impact your CIBIL score. Spreading your expenses across multiple cards, requesting a credit limit increase, repaying outstanding balances in full every month, and maintaining one or two credit card accounts with a zero balance are some ways to limit the credit utilisation ratio. 
• Avoid Multiple Loan Applications: Applying for multiple loans or credit cards within a short period can have a negative impact on your CIBIL score. Each time you apply for a loan or a credit card, lenders make a hard inquiry on your credit report, which can temporarily lower your score. Multiple inquiries in a short time can indicate financial distress and reduce your creditworthiness. To avoid this, apply for credit only when necessary and only apply for the amount that is truly necessary. 
• Resolve Past Due Accounts: This measure is essential for improving your CIBIL score. If you have any past-due accounts, try to settle them as soon as possible. Outstanding debts and defaults significantly lower your CIBIL score. Work with your lending institution to come up with an alternative repayment plan or explore debt consolidation or settlement options. Once resolved, ensure that these updates are reflected in your CIBIL report. Clearing your overdue accounts can stop further reporting to CIBIL and you can start the process of rebuilding your credit history.
• Maintain a Healthy Mix of Credit: Having a balanced mix of secured (home or car loans) and unsecured credit (personal loans or credit cards) can help improve your CIBIL score. For example, having both a credit card and a home loan can demonstrate that you can handle different types of credit responsibly. However, avoid taking on unnecessary debt just to diversify your credit mix. Focus on managing your existing credit responsibly and only apply for new credit when necessary.

What is considered a Good Credit Score?

A specific score considered to be “good” can vary depending on the rating model used or the lender’s criteria. The CIBIL score range in India is from 300 to 900. In general, a score in the range of 650 to 749 is considered to be “good”, while scores of 750 and above are thought to be “excellent”. A credit score of 750 and above will increase your chances of getting a loan with low interest rates, provided you meet other eligibility criteria.

How is Your CIBIL Score Calculated?

CIBIL scores are calculated taking into consideration several factors that include your payment history, length of payment history, applications for credit, the debt amount, credit mix, etc. Different weightage is awarded to each of these factors. Ensuring a good score is an ongoing activity.

Why Is Your Credit Score Important?

Your credit score is important because it is a numerical representation of your creditworthiness, which is the likelihood that you will pay back your debts on time. It is a tool that lenders, such as banks, credit card companies, and other financial institutions, use to assess the level of risk they would be taking by lending you money or extending credit. A good credit score is one that ranges from 750 to 900.

Monitor Your Progress to Increase CIBIL Score

Improving and maintaining your CIBIL score is an ongoing process requiring consistent responsible financial habits. Here’s how you can stay on track and measure your progress:

• Check Your Credit Score Regularly: Regular monitoring helps you stay aware of your current credit status and track any changes over time. By knowing your score, you can judge the impact of your financial habits and take the necessary steps to improve your CIBIL score. CIBIL, as well as other credit bureaus, let you check your score for free once a year. With a paid subscription, you can monitor your report and score more frequently. Several financial institutions also offer the facility to check your CIBIL score for free through their website or mobile platforms. It is prudent to check your score at least once every 3 to 4 months to stay on top of your financial health.
• Review Your Credit Reports for Accuracy: Your CIBIL score can also be negatively affected by errors or inaccuracies in your report, such as incorrect personal details or unauthorised transactions. If you spot any errors, you can raise a dispute with CIBIL or the concerned credit bureau to get them rectified. Ensuring that all the information on your report is correct will accurately display your creditworthiness and help your efforts to increase your CIBIL score. Moreover, regularly reviewing your credit report also helps in identifying any fraudulent activities or attempts at identity theft early on.

CIBIL Score Range

CIBIL scores range from 300 to a maximum of 900. A score between 300 to 549 is considered poor whereas 550 to 700 is considered as an average score. Being at the top of your credit score can help you obtain loans easily, but the opposite is also true.

Use the CIBIL score checker today to know what your credit score is.

The minimum CIBIL score for a personal loan is 700 and above. Anything below 700 could be a cause for concern. However, all is not lost. While your credit score cannot change overnight, major and minor modifications in your financial habits can help in making a significant difference.

Reason for Low CIBIL Score

A low CIBIL score can affect your ability to obtain credit, including loans and credit cards. There are several factors that can lead to a low CIBIL score, including:

• High credit utilization: If you use a large percentage of your available credit, it can indicate that you may be relying too much on credit, which can negatively impact your score. Keep your credit utilization ratio low, typically less than 30% of your total limit.
• Late payments: Late payments on loans or credit cards can lower your score, as it suggests that you may be having difficulty managing your finances or prioritizing your debts.
• Too many loans or credit accounts: Having too many loans or credit accounts can be a sign of financial strain and credit hungry behavior. This can make lenders hesitant to extend credit to you.
• Defaulting on utility bills or other payments: Utility bills, such as electricity, water, or phone bills, can also impact your CIBIL score. If you regularly miss payments or default on bills, it can signal to lenders that you may be at a higher risk for defaulting on loans or credit accounts.

How to Increase your CIBIL Score Immediately?

1. Repay Credit Card Dues on Time

Paying outstanding credit bills can help in improving your credit score. Getting into the cycle of paying only the basic amount due as it appears on the credit card statement might help in escaping late payment charges. This minimum amount due is approximately 5% of the billing amount in that cycle. However, this leads to interest and taxes being added to the bill in the next cycle and leads to a mountain of debt.

Paying dues on time not only prevents interest from mounting, but it also helps in improving your credit score in the long run.

2. Limit Credit Utilization

Using less than 30% of your credit card limit can help in preventing damage to your credit score. On the other hand, not using your credit card at all can adversely affect your credit score. It is advisable to pay off your credit card dues well in advance. Using more than 30% on your credit card is considered to be high credit utilization, it is advisable to opt for a higher credit limit which can help in increasing your credit score fast. Also, it is advisable to limit your applications for loans. Applying for multiple loans can also adversely affect your score.

3. New Credit Cards

Be prudent while applying for credit cards. While credit cards are helpful while applying for loans, having an excessive number of credit cards and making high-value purchases might prove to be counterproductive. While applying for a credit card, it is a good idea to check your credit eligibility and apply to banks where the chances of your loan application getting approved are higher. This is because not only spending excessive amounts on your credit card but applying for credit cards from several banks can adversely affect your credit score.

Ensure that you maintain a reasonable gap between making applications to prevent lenders from believing that you are chasing credit. Applying for credit cards when you can repay it helps in adding points and helps in increasing your credit score.

4. Keep a Check on Your Credit Report

A study by the Federal Trade Commission in 2012 found that approximately 20 percent of customers had an error in their credit report. A repeat study conducted in 2015 found out that customers who reported an unsolved error still believed that there was an error in the report. Keep a check on your credit report from time to time for inconsistencies and errors. Credit bureaus are legally bound to offer borrowers one free credit report a year.

Online marketplaces have also simplified the process of monitoring credit history. The report could contain errors like incorrect information, delay in updating the report or a delay in updating important details in your report. These errors can adversely affect your credit score. Errors, if any, can be reported and rectified instantly.

5. Opt For Different Types of Credit

Credit, if obtained wisely, is helpful since a person who has never obtained any form of credit will generally have a lower CIBIL score which can make it difficult for them to obtain loans. Hence, it is advisable to include different types of credit in your portfolio that include a mix of personal and secured loans, long as well as short term loans to improve your credit history.

This step can help in improving your chances of availing a higher loan and a lower rate of interest when you decide to apply for a loan. Know what is a CIBIL score today.

6. Increase your Credit Limits

By increasing your credit limit, it will instantly lower your credit utilization ratio and boost your credit score.

Over utilizing the credit limit available to you beyond a certain limit will result in the credit scoring models categorizing you as a high-risk borrower. As you are utilizing the full credit limit (or beyond a certain limit), your credit utilization ratio increases significantly, thus increasing the risks of default. Although the risks distantly apply on you, your credit score gets negatively impacted.

Hence, it is wiser to increase your credit limit before any additional spending. By doing this, you get the opportunity to manage your credit wisely and can keep your credit utilization low, thus increasing/maintaining your credit score.

7. Keep Old Debt on Your Report

Your credit score is a reflection of your past credit behavior and based on that, the lender approves the loan application.

Therefore, keeping the records of your old good loan account in your credit report is a good practice for your credit score. After all, a debt that is repaid following the agreed terms within the stipulated time frame increases your creditworthiness and has a positive impact on your future loan application.

Also, one of the other ways to improve your credit score is to keep your good accounts active where you’ve got a solid repayment history for as long as possible. This is the most common tactic used by business enterprises. They keep their credit account active for as long as possible, to boost their credit score.

8. Never Give a Hint of Risk

The credit scoring models are designed to pick up the early signs of stress and risks in the borrower’s profile.

For example, missing on credit card payments, suddenly paying less than the total due amount or revolving credit is the first sign of stress in the borrower’s credit profile. Other changes such as, taking cash advances or using cards at meeting business expenses are signs of stretched cash flow.

9. Don’t Apply for Multiple New Credit Lines

Opening a new credit line increases your credit limit, but every application for a new credit line creates a hard inquiry on your credit report. Hard inquiry is a detailed analysis of your credit profile to assess how much risk you possess as a borrower.

As hard inquiry is reflected on your credit report for two years, multiple hard inquiries in a short span of time can negatively impact your credit score. Hard inquiry resulting in rejection of loan application is an extremely negative event.

10. Be Patient and Persistent to Your Approach

A credit score doesn’t improve overnight and it requires consistent effort to repair the credit report and improve it.

Therefore, you need to be patient and continue to monitor your credit report, your different credit lines, spending pattern and ensure timely payment of a debt. Over time, it will help to boost your credit score and improve your creditworthiness.

Increasing your CIBIL score is an uphill task but can be achieved with the help of planning and discipline.

How does a CIBIL score Affect Eligibility for Loans?

A CIBIL score plays a major role in determining your eligibility for a loan. A high CIBIL score, generally 750 and above, allows lenders to see you as a low-risk borrower with a good track record of loan repayment. This significantly increases your chances of fast loan approval as long as you meet all the eligibility requirements. Applicants with higher credit scores can also get more favourable loan terms such as low-interest rates, higher loan amounts, and more flexible repayment periods.

Please note that the loan terms will also depend on other factors such as age, monthly income, employment status and lender’s policy at the time of application.

Conclusion

Ensuring timely payments, limiting credit utilisation, and resolving past-due accounts are some of the most effective ways to improve your CIBIL score. Checking your credit score regularly and reviewing your credit reports for accuracy ensures that you stay on the right path to financial health.

A good CIBIL score can be a gateway to secure favourable loan terms and financial opportunities. At SMFG India Credit, you need a CIBIL score of 750 or above to apply for a personal loan. We offer loan amounts of up to INR 30 lakhs* with attractive interest rates to fuel your personal or business aspirations. Check our eligibility criteria and apply now with a 100% online application process that requires minimal documentation.