Your chances of getting a loan in India depends on your CIBIL Score. If you have a bad credit score and you want to improve it for a future credit need, here are some good practices you could follow.
TransUnion CIBIL, popularly known as CIBIL (Credit Information Bureau Indian Limited) is an Indian credit information company that maintains records of credit-related activities of individuals and companies. It is part of TransUnion an American Consumer Credit Reporting Agency.
Understanding your CIBIL Report
Your Credit Information Report (CIR) (as it is called is), contains the history of all your loans and credit card transactions that gives CIBIL the data to make an analysis of your financial behaviour and discipline.
Your current behaviour will help them estimate your future capacity to repay a loan. This report is shared with banks every month.
The CIBIL Score ranges between 300 to 900 points, 300 being on the lower end. Between 700 to 900 you have an ideal score.
What affects your CIBIL Score?
Positive factors include regular loan and credit card payments whereas, default payments negatively affect the score.
Also, having existing loans and credit cards will affect your score positively while multiple pending loan and credit card applications do not.
How to check your CIBIL score?
You can check your score on https://www.cibil.com.
You will need:
- CIR request form
- ID Proof
- Address Proof
A minimum of Rs 550 will be charged to get access to your score.
Identify CIR errors if any
There are chances your score was wrongly calculated. A bank account you had closed still appears as active, or technical errors made by the bank in a transactional entry.
If you do identify any such mistake, get in touch with CIBIL through its online dispute forum to get the error corrected.
Clear credit card dues
Clearing off your credit card's outstanding payments before the due date will go a long way in improving your CIBIL score.
If you happen to face a genuine financial obstacle like loss of job, you can pay the dues when your situation gets better. It is best not to ignore the dues.
Maintain 30% credit utilization
Do not use your credit card for everything. It is ideal to use 30% of your available credit. Over spending as well as underspending will affect your score.
While overspending shows weakness in financial decision making, underspending will not necessarily give the banks any business.
Best not to take new loans
Its advisable to not take new loans without clearing previous loan dues.
Deactivate old credit cards
The best method is to get a credit card and hold on to it. Having the same credit card for a long period with timely repayment is a good indicator of healthy spending habit and a positive credit card holding history.
If you happen to get a new one, and stop using your old credit card, discontinue it immediately.
You might have bought a car or a house which is entitled to Equated Monthly Installment (EMI) payments.
Timely EMI payments on purchase of something like a property or vehicle, cannot be ignored by lenders. The chances of immediate loan approval is high.
Enhance your credit limit
When your credit score improves, banks will offer to enhance your credit limit to show their improved confidence in your financial discipline. Accept the offer but it does not necessarily mean you need to spend more.
The increased limit will further improve your credit score.