CIBIL Score, Credit Score: The credit score is the complete summary of an individual's credit history. It is used by banks, lenders and other financial institutions to decide loan eligibility. The score is considered as an indicator of how likely or consistently the borrower will be able to repay the loan.
A high score establishes a good consistent credit history which includes timely payments as well as the use of credit in the past. A low score indicates the risk and less conviction from the lender's part. There are many factors behind this, like late payment, defaults or taking regular loans. The CIBIL score ranges between 300 to 900. If the score is above 800, the rating is considered as Excellent. The rating depreciates as the score falls. Below 360, it is considered as Poor.
Harshad Chetanwala, a certified financial planner and co-founder MyWeathGrowth, said that it takes time to create a good credit score. The score can deteriorate much faster if due care is not taken to manage the credit. If the score is not up to the mark, the borrower may not get the best interest rate when the loan is required.
Now that your credit score is important, particularly in the case while borrowing money or applying for a credit card, try these tips to maintain a healthy CIBIL Score to avert rejections:
1. Review your Credit Score
Anyone can access the credit score and review details using CIBIL website or report. Most importantly check whether the data is correct, particularly the credit history. Sometimes there could be disputes that the applicant may identify and take necessary action to avoid any impact on the credit score. The person can raise a dispute through CIBIL’s website in case of any discrepancy. Sometimes the cost of such issues can be much higher, hence reviewing the credit score is advisable before applying for a loan.
2. Pay EMIs, Credit Card bills on time
It is advised to pay EMIs, Credit Card bills on/before time to avoid any possible degradation in the credit score. Set reminders for the due date. In today’s time, everybody is preoccupied with many tasks, therefore, there could be occasions where someone misses out on the payment of a credit card or loan. Any such missout has an implication on the credit score. Hence, always make the payment on time and if required set a reminder for the payment a few days or a week before the due date. Paying dues consistently helps in improving the credit score.
3. Don't breach the credit limit
The amount of credit an individual tends to use can also have an impact on the credit history. It reflects in the credit score. Hence, it is better to apply for a loan only in case of a need. Avoid taking casual credit even schemes offering appliances or gadgets on EMI through credit card. Credit cards are one of the most expensive ways to take the credit if not repaid on time. Often, individuals get into the vicious circle of credit card payment and this impacts the credit score.
4. Plan early closure of the debt
Planning early closure of debt can help in improving credit scores. Make a full prepayment of the loan if possible. One of the ways to make early closure of the loan is to keep accumulating a certain amount regularly either in a bank account and use that to reduce or repay the debt. For loans that are long term in nature, lenders offer to make part payments. This will reduce liability and help in the payment of loans early.
5. Avoid taking loans from multiple lenders at a time
Do not apply or take loans at a time from multiple lenders. It is better to repay the existing loan first and then apply for another loan if required. This is the right way to maintain a healthy credit score. It gives an impression that the borrower is in better control of finance and does not need more credit.