How
to improve your CIBIL or Credit score
Business
and personal needs drive a person to reach out for a loan. But getting loan is
not an easy task as it seems. You need to have a good credit rating for getting
a loan apart from your financial stability. The biggest fact about this lending
industry, which I have learned in all these years of my experience. Is that loan
is not provided to the needy, it is provided to the greedy. One who has the
capability to repay it. Apart from your financial papers, net worth
calculation, income proof, CMA and income source, the think which plays a
crucial role in the sanction and approval of your loan is your “CREDIT SCORE”.
You
must have seen or evident many occasions where you come across the testing of
your Credit Score like, “Get your Credit Score” or “Test your Credit Score”.
Many of you must have got your loan application rejected or declined due to poor
credit score. Now the biggest question which is right now popping in your mind
is, “what is the Credit Score”, “Why is it so important for loan approval” and
“how to improve it” etc.
Credit
Score or CIBIL
Credit
Score is the rating provided by a credit bureau which denoted your credit
worthiness and potential to repay the loan or debt. It provides the estimate to
the bank or financial institution about your capability to repay their loans.
It’s a three digit score. It ranges from 300 to 900. The higher your score is,
the better your rating and chances to get the loan sanctioned. In India mostly
credit score is been addressed as CIBIL or CIBIL Score which is not official
correct but due to daily practices it’s apparently considered correct. In India
there are four concerns or in correct words, bureaus authorized by RBI (Reserve
Bank of India) to provide credit score. Credit Information Bureau (India)
Limited [CIBIL] is one of the most preferred credit bureau that is the reason
why credit score in India is referred as CIBIL Score or CIBIL.
Credit
score is only for individuals or persons. For others like company, firm,
business entity and even including individuals the credit analysis is called as
credit rating.
Anybody can check their credit score from various websites available.
Importance
& Benefits of Credit Score
A
good Credit Score provides many privileges and benefits to an individual. Every
finance seeker desires to have a high Credit Score. A credit score above
700-750 is considered good score. The importance and benefits of high credit
score are :-
1. Easy
loan sanction – the people with good credit score gets the loan sanctioned
easily. The loan sanction process starts with the checking of credit score. A
person with good credit score has the higher chances of getting the loan
application approved and loan sanctioned. A bad credit scope gets the loan
application rejected right at the face.
2. Get
low interest rates – the person with good credit rating may get competitively
low interest rate as the banks and financial institutions try to capture the
prospective client. A person with good credit rating has a high negotiating
power to negotiate and lower their interest charging rates.
3. Charges
waiver or decrease – the person with good credit rating may get financial
charges and other charges waiver or decrease which results in financial cost
saving in complete life cycle of loan. Even such category of persons may also
negotiate with the bank or financial institution to waive their charges.
4. Lower
processing Fee – the person with good credit rating may lower or decrease the
processing fee over their loan after negotiation.
5. Higher
and more rewards – In case of credit card, the person with better credit rating
gets more rewards likes cashback, discount, coupons etc.
Credit
Rating Issuers
In
India, credit rating is provided by four Bureaus authorised by RBI (Reserve
Bank of India). We will not go in detail about these
1. Credit Information Bureau (India)
Limited (CIBIL)
2. Equifax
3. Experian
4. CRIF High Mark
How
to improve Credit Rating
This is the most crucial part to discuss. With the help of this knowledge anybody can improve their credit rating. The following will help to improve your credit rating:-
1. Use credit card regularly – If you have credit card use it regularly. If credit card is not used properly then the credit rating is affected as it shows low financial needs and utilisation.
Here is a trick to show your credit card limit usage. If you are not using credit card for shopping or other lucrative purchases, pay your routine bills by your credit cards and get its usage reflection in records.
2. Pay you loans and credits before due date – Pay your loans and credit cards dues a little before their due dates. It reflects the healthy money flow. And holding the payment till the last date degrades your credit track record.
3. Don’t check score frequently – Mostly it is recommended to check your credit score frequently but I have seen in the past that individuals with poor credit score use to frequently check there credit score and it resulted in further decreasing their credit score. So if your credit rating is low don’t check it very frequently. First build a little sound investment record and then check at least after 6-8 months. For better results try to file a good income tax return in the mean while time (between this 6-8 months gap).
4. Diversify your investment portfolio – As now a day’s your investments accounts are linked with Aadhar, your investment details are available at a common pool for access to authorised authorities like credit bureaus. People with diversify investment portfolio have better credit scores always. So just won’t keep your investments in fixed deposits or saving accounts but diversify. Purchase shares, securities, bonds, mutual funds other than just solid assets like real estate.
5. Regular Income Tax Return filing – Income Tax Return is the source of financial record for every authority like Income Tax and credit rating bureaus. The financial records are traced by these bureaus from the income tax returns filed by you. People with no income tax return filing record mostly have poor credit rating.
6. Longevity of Credit life – People with sound and long credit life record like running term loans in the past and timely payments, have better credit score. Take your credit usage and repayment seriously. And if you are not getting long term loan funds then try to get short term small credits for your various usages which will start building your credit usage track record.
7. Avoid defaults – Bank and financial institutions stay away from defaulters. Yes it is obvious that no one knowingly does any default but many times our ill-planned financial cycle or calendar invites payment default. Always run with cover transaction to ensure fund availability for loan payment on due date.
8. Get a credit card – Yes it is correct. Your credit card can help you to get a good credit score. So if you won’t have a credit card get one soon. As it is evident that people with credit card and its good track record have good credit worthiness.
9. Balanced Credit Mix – It is important to even diversify and maintain your credit portfolio. Have a balanced loan structure which reflect an appropriate usage and finance cost maintenance (interest and charges). Use long term funds for long term usage and short term for short term usage. Use specialized fund for specific purpose, like home loan for housing finance etc. All this builds a good credit score.
Do’s
and Don’ts
In
case of building an attractive Credit score. You should :-
Do’s
- Have
a credit card.
- File
income tax return regularly.
- Diversify
your Investment and loan (Credit) profile.
- Keep
Loan defaults at bay.
- Check
your credit score atleast once in every Six Month.
Don’ts
- Avoid
late payment of loan installments.
- In
case of default, negotiate with your lender to have an out of court settlement
& avoid to be listed in defaulters list.
- Don’ts
associate yourself in joint loans with financially unsound individuals and
entities.
- Avoid
providing guarantee for financially unsound individuals and entities.
- Avoid getting to many loans.
Here is my best try to provide you the information about credit score and ways to improve it from my experience and knowledge. Friends I‘am putting my strongest efforts to provide you all the details in simplest language, please show your support and follow my blog. Do share with your friends and family to spread the knowledge.
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The above blog is purely for educational and guidance purpose. It's just the reflection of the author's personal experience and judgment. The author has just provided the general information & understanding and its not at all an alternative of any legal advice or practitioner. The content stated in the blog should be used by the reader at his own discretion and sole responsibility. The content of the blog can be only used for any other document, write-up, article, blog and any written or printed material whether on paper or digitally in any form, with the prior permission of the author.
