Whether you have been browsing a two-wheeler, small business, or personal loan in India, you must have certainly come across the terms ‘credit score’ or ‘CIBIL score’. What is it, and why is it essential for loans?
A credit score is a three-digit figure between 300 and 900. It is based on your credit history, which takes into account your total debt, repayment history, and other parameters. In India, this credit information is maintained by the Credit Information Bureau (India) Limited (CIBIL).
Lenders use this score to check your creditworthiness, which means your commitment and responsibility to timely loan repayment. People with good credit scores promise the desired loan amounts at lower interest rates and longer repayment tenures. Conversely, those with low scores may face loan application rejections. Even if they are approved, lenders may offer lower loan amounts at high interest rates.
How can you check your credit score?
You can check your credit report online on the official CIBIL website. You need to select your purchase plan, provide your details, and make the payment. You will then have access to your CIBIL score and report. Besides your credit score, it will have your personal information, contact, employment history, credit facilities details, and enquiry information.
What range does your CIBIL score fall into?
- 300-550: Poor
- 550-650: Average
- 650-750: Good
- 750-900: Excellent
While no lender specifies a minimum credit score for a loan, a score of 750 and above is usually preferred by everyone. If your CIBIL score is not as good as needed, you can take various steps to improve it. Let’s explore further!
Seven credit score tips backed by experts
While there’s no quick fix to boost your credit score, you can improve it over some time with consistent efforts. We teamed up with Manba Finance experts and charted out a cheat sheet to help you reach a good credit score and improve your chances of getting better loan opportunities whenever required!
- Pay your bills on time
Your repayment history contributes to nearly 35% of your credit score—the maximum compared to all other parameters. Whether credit card bills, EMIs, or utility bills, ensure you clear all payments on time. If you make late payments, it can significantly impact your credit score. “Setting up alerts and reminders or scheduling automatic deductions are excellent ways to stay on track with your pending dues. You can also set aside time weekly to review your finances and make the necessary arrangements for upcoming payments.”, shared Manba Finance expert.
- Reduce your credit utilisation ratio (CUR)
If you routinely use up your entire credit card limit, it can negatively affect your credit score. Our expert suggests, “Ideally, do not exceed more than 30% of your monthly credit limit at any given time. If your credit limit is Rs. 1,00,000, your utilisation should not exceed Rs. 30,000.” The easiest way to reduce your credit utilisation ratio (CUR) is to decrease expenses and pay your balance early. Additionally, you can increase your credit limit, open a new credit card, and avoid closing unused credit cards to keep your CUR in check.
- Manage your debt responsibly
Managing debt may seem complicated, especially if you have many loans and hefty credit card bills. First, you should create a monthly budget based on your income and regular expenses and set aside the required amount to pay off debt. If you get any extra funds, allocate that amount towards debt payment. Based on expert insights, taking out a new loan to pay existing debts is a good strategy if there is a considerable difference in the interest rates. This strategy is known as debt consolidation.
- Be cautious with credit inquiries
Credit inquiries are of two types: soft inquiries and hard inquiries. When you request your credit report or a credit card company or employer checks it, it is a soft inquiry and does not impact the credit score. However, when a lender checks it after you apply for a loan, it is a hard inquiry, and it remains on your credit report for up to two years. Lenders may consider you a high-risk borrower when too many hard inquiries are made quickly. Manba Finance experts have a solution: “First, space out your credit card or loan applications over a few months. Second, regularly review your credit report to ensure no unauthorised inquiries are made.”
- Build a positive credit history
You can build a credit history over time by having a mix of credit accounts and retaining your oldest accounts. So, having a few credit cards, a mortgage, and an unsecured loan will help you build a good credit score compared to having just one credit account. Experts warn, “While doing so, ensure you only take credit that you can responsibly manage.” Similarly, if you have old credit cards, keep them active instead of closing them to maintain a positive credit history.
- Monitor your progress
You must regularly check your credit report for two purposes: CIBIL score management and addressing errors or inaccuracies. We asked our experts how often they would recommend checking the credit report, to which they recommended, “At least once a year in usual circumstances and every few months if you are planning to apply for a loan.”
- Seek professional advice if needed
If credit report management seems daunting, you can approach financial advisors or credit counseling agencies for guidance. They will understand your unique requirements and offer personalised credit score tips.
Key takeaway
You can significantly improve your loan credit score by applying these seven tips. Manba Finance is your one-stop shop if you have more credit score-related queries or want to explore loan options. Connect with us today!
