When you apply for loans, there are several factors that affect the approval and terms of the loan. One of the major factors is the CIBIL score. A poor CIBIL score can impact your creditworthiness in undesirable ways. That is why today we will tell you how to improve the CIBIL score quickly to improve the terms of your loan.
Table of Contents
What is the CIBIL score?
Before we delve into how to improve CIBIL score, let us understand what it is and how it affects your loan.
The CIBIL score is a form of credit score that is used to determine your creditworthiness. There are 4 major credit bureaus authorized by the government of India. CIBIL is the most commonly used credit bureau because 90% of the banks and non-banking financial institutions in India accept their report.
The CIBIL score is calculated based on the inquiries and accounts on the CIBIL report. Your CIBIL score can range from 300 to 900. The higher the CIBIL score, the better are the chances of approval on your loan at lower interest rates.
How does a low CIBIL score affect your loan application?
When you apply for a personal loan, education loan, home loan, auto loan, etc. the first thing that the lender checks are your credit score. If you have a low CIBIL score then it indicates that you are a high-risk borrower. This is a serious concern for the lender as their money is at stake.
Therefore, they may either reject your loan application or approve the loan at a high rate of interest. This way the risk incurred by the lender is reduced. However, it is not an ideal scenario for the borrower. This is why you need to consider how to improve CIBIL score quickly so you can get that loan approved at an affordable rate of interest.
What causes a low CIBIL score?
There are 4 main factors that affect your CIBIL score according to the Indian credit bureau. If you are wondering how to improve credit scores quickly then pay special attention to these mistakes that you might be making:
- High amounts of Credit card debts
- History of late payments
- Unbalanced credit mix of secured and unsecured loans
- Multiple simultaneous loan applications
How to improve the CIBIL score quickly?
Now that you know what causes a low score, let us take a look at how to improve your CIBIL score:
Check your CIBIL score for errors
Often the low CIBIL score is due to a lack of updated information. Keep an eye on your credit score and if you know that you have paid your dues on time then contact your lender to update the latest financial information. This is a proven way on how to improve the CIBIL score immediately.
Reduce the use of credit cards and loans
If you have too many outstanding debts, loans, and credit cards, it implies that your expenses are more than your income. It makes you a high-risk borrower which in turn affects your CIBIL scores. Pay your outstanding debts and credit card bills as soon as possible.
Keep in mind though that not using your issued credit card also impacts your credit score. Therefore limit the use to less than 30% of your credit limit. If this is difficult, then consider increasing your credit limit so that your expenses are lower in comparison to the high limit.
Repay your credit card dues on time
As we have mentioned before, delays in repaying loans and credit cards can impact your CIBIL score. Therefore plan your expenses and bills and pay back the dues on time to improve your CIBIL score quickly.
Don’t apply for multiple credit cards
If you want to know how to improve the CIBIL score, then cut down on using too many credit cards. Plan your financials according to your income and necessities. You can build a good credit score and then apply for larger secured or unsecured loans to take care of your extravagant needs.
Apply for an increase in your credit limit
Consider applying for higher limits on your credit cards. This way you will utilize less than the amount allotted to you. It impacts your CIBIL score by indicating that you are a low-risk borrower who only utilizes small amounts of the credit limit.
Include old debts with goodwill
If you have any old credit accounts with good financial behaviour, then include them in your credit report. Any old debts that were paid back in due time as per the agreement, is an excellent addition to boost your CIBIL score. It proves that you diligently pay your debt and takes a step towards how to improve CIBIL score.
Diversify your credit options
If you have never applied for a loan or credit card, you can have low CIBIL scores due to continued inactivity. You can change that easily by applying for some short-term loans of low amounts and repaying them promptly. Then you can take long-term loans and make subsequent timely payments.
This helps in building your credit profile which reflects on your creditworthiness. This is a widely advised method for how to improve the CIBIL score.
Avoid applying for multiple credit lines simultaneously
You may be in urgent need of credit. But do not apply for multiple loans and credit cards at once. Even if all your applications haven’t been reviewed yet, it will still reflect poorly on your profile. This causes uneasiness to the lender who will reject your application even though you don’t actually have a lot of debt.
Don’t indicate signs of risk
Credit scores take all your financial behaviour into account. Don’t make sudden changes to your credit line such as late payments or paying business expenses with credit cards, etc. These sudden alterations will reflect in your financial behaviour as a stretched cash flow which will reduce your credit score. Plan your finances in advance and maintain uniformity on your credit profile.
Don’t expect your credit scores to improve in a day. Follow the steps diligently and very soon your credit scores will start to improve.
We hope these steps help you quickly improve your creditworthiness. For more information on how to improve the CIBIL score, you can click here