A CIBIL score is the numerical summary of an individual’s creditworthiness and financial behavior. It gives an idea regarding a borrower’s repayment potential. Hence, financial institutions scrutinize it before approving a loan application.
In addition, lenders ascertain credit risk by analyzing borrowers’ credit scores. Hence, borrowers must maintain a healthy credit score of 750 and above. Keeping a good CIBIL score for personal loans will not only help them receive quick loan approvals but will also help fetch affordable loan terms.
Tips to Enhance CIBIL Score for Personal Loan
A poor CIBIL score can lead to the rejection of loan applications, especially in the case of unsecured loan options like personal loans, where lenders do not have borrowers’ collateral to fall back on. Hence, an individual looking forward to avail of a loan must be well acquainted with the following tips to enhance their CIBIL score.
1. Avoid taking multiple credit option
Too many loan applications will lead to several hard inquiries that will significantly bring down the CIBIL score. Numerous hard inquiries in a short span will reflect on borrowers’ credit reports prompting lenders to question borrowers’ repayment capacity. Furthermore, multiple loans will lead to a borrower’s repayment burden; hence lenders are likely to charge higher interest rates.
Hence, borrowers must try to clear their existing dues and loan liabilities before opting for a new credit option.
2. Minimise credit utilisation
Credit utilization limit influences borrower’s CIBIL score. Individuals must not exceed 30% of the total credit limit as it is considered high credit utilization. High credit utilization brings down the CIBIL score. In case individuals find it challenging to maintain a credit utilization percentage below 30, they can opt for a higher credit limit. It will help them boost their CIBIL score besides managing their expenses.
On the other hand, individuals who do not use their credit cards will also see a drop in their CIBIL score.
3. Repay dues on time
One of the most effective ways to enhance CIBIL score is to pay the outstanding credit bills and loan amounts on time. Individuals must be well disciplined with credit repayment and set reminders to initiate timely EMI payments.
When it comes to clearing off credit card bills, individuals must ensure that they are not clearing only the basic amount that is due on the credit card. These contribute to the interest and taxes that will get added to the bill resulting in colossal debt.
4. Keep a track of credit report
Individuals must review their credit reports from time to time. It will help get an idea regarding any discrepancies or errors. Such errors might lower an individual’s CIBIL score. Therefore, borrowers need to submit a CIBIL dispute resolution to get away with such discrepancies and improve their credit scores accordingly.
5. Maintain a healthy credit mix
Another effective way to improve CIBIL scores is to opt for a healthy credit mix. It is generally suggested to borrowers to maintain a healthy mix of availing both secured and unsecured loans. For instance, lenders are less likely to approve the loan application of an individual who has opted for multiple unsecured credit options at a stretch.
To escape such circumstances, borrowers can opt for both options to meet their varying financial requirements. In addition, ensuring a healthy credit mix will enable borrowers to access higher loan amounts.
6. Refrain from settling loans and credit cards
In order to improve CIBIL scores, an individual must avoid opting for settling loans or credit cards. Such deals with a financial institution for closing a debt will result in a negative mark on their CIBIL report, thereby lowering their chances of receiving quick loan approval.
7. Maintain and manage old debts
A credit score reflects a borrower’s past financial behavior and payment patterns, depending on which lenders approve a loan application. Hence, borrowers must strive to keep their old debt records. The reflection of the debt liabilities that have been repaid on time on agreed terms will give borrowers an upper hand in receiving quick loan approval. In addition, if borrowers have a solid repayment history, they must keep their old loan account active even if they are not assessing the account, helping them enhance their credit score.
Individuals can also opt for longer loan tenure to improve their credit scores. An extended repayment term will reduce the EMI burden, helping borrowers to repay the sanctioned credit within the stipulated time. The on-time loan repayment will result in the improvement of the CIBIL score.
In addition, since the credit report will reflect all possible risks related to borrowers’ credit profiles, they must never skip any EMI payments, pay less than the cumulative due amount, etc. Such activity hints toward stressed cash flow, ultimately affecting borrowers’ CIBIL scores.
Lastly, borrowers must remain persistent in trying all means to improve their credit scores. Individuals cannot expect a drastic change in their credit score overnight. Instead, they must be consistent and patient and monitor the credit report periodically.
Reasons behind a Low CIBIL Score
Besides knowing how to improve the CIBIL score, one must know the reasons that lower the score.
1. Missing out on EMI pay-outs
Failing to repay the loan amount on time will lower the CIBIL score. Hence, individuals must be prompt with their EMI payments.
2. Multiple loan application
Lenders check borrowers’ credit reports every time they submit a loan application. Moreover, multiple debts make the borrower’s repayment capacity questionable. Hence, borrowers must refrain from applying for too many loans simultaneously.
In case borrowers have high exposure to unsecured debts, outstanding credit card balances, etc., it leads to substandard CIBIL scores.
The CIBIL score summarises the borrower’s credit history. Lenders measure how likely a borrower will repay a loan on time, depending on the details of their credit reports. Hence, borrowers must be well-versed in the ways to enhance their CIBIL scores for personal loans in order to avail of considerable loan amounts seamlessly.