There was a time when financial fitness was not up there on the to-do list of most people, but that is definitely not the case anymore. One of the factors that determine from a lending perspective just how healthy you are is your credit score. Globally, the credit score not only helps you get a loan or credit card, but can also be the deciding factor in your securing a job, the premium you will pay on your insurance, getting an apartment on rent or even a new mobile phone connection.
In India, while credit scores are not an alien or unfamiliar concept any longer, the usage as of now is mainly restricted to the banking and financial services (BFSI) domain.
What is a CIBIL score?
We’ve touched upon credit scores – what then is a CIBIL score and how does it differ? Well, a CIBIL score is nothing but a credit score, but with CIBIL being India’s oldest credit information company or bureau, the terms are used interchangeably. A score ranges between 300 and 900 and conveys your creditworthiness to a lender, that is the likely of a customer defaulting on the loan or credit card payment.
However, if you wish to call for a copy of your credit report, you can do so from any or all of the credit bureaus, namely CIBIL, Equifax, Experian and CRIF High Mark.
Factors that impact the CIBIL score
Broadly, given below are the factors that impact the score, and hence it becomes important to monitor the score at regular intervals, to ensure the information contained therein is accurate as well as complete. Any discrepancies need to be rectified immediately, so that they do not have a negative impact on your score.
If you look at the chart above, a large chunk taken into account pertains to your repayment history; hence tracking your payment becomes important.
Tips to improve the CIBIL score
Now that we know what constitutes a CIBIL score and the important and relevance it has in our lives, let’s look at how to boost your credit score.
Check your credit report – Once you are armed with a copy of your credit report, is it the first step towards achieving your goal of good credit health. Check this report and ensure all data mentioned therein is accurate and up to date. In case of any errors, you would need to have them resolved with the concerned lender as well as the credit bureau.
Timely bill payment – Whether credit card dues or a loan EMI, make sure that you do not delay payments, or worse, skip making one. This simple practice can fracture your score if not addressed. Set up payment reminders or sign up for auto debit instructions to ensure that all your outstanding dues are cleared in time, on or before the due date.
Clear off debt – If your credit report is riddled with multiple open lines of credit, consider closing them, one by one. Even if this appears to be a tedious process, in the long run it can do wonders for your score.
Retain ‘good’ old debt – While you may do well to clear off outstanding dues, what can go against this effort is closing old accounts with a good payment history. With your repayment track record amounting to as much as 35 percent of your credit report, it is important to maintain an account that is old, and has been serviced well throughout. This indicates your credit responsible behaviour and can help your score immensely.
Track your credit utilisation ratio – The ideal credit utilisation ratio is 30 percent of your overall limit, be it one card you hold or several. To cite an example, if your credit limit is Rs. 1.0 lakh, make sure your spends do not cross Rs. 30,000 as high utilisation of the limit can indicate credit hungry behaviour.
Keep the limits reasonable – While a high credit limit may sound very attractive, it can also tempt you to spend beyond your means, landing you into a possible debt trap. Hence, while a low limit may not serve the purpose of having a credit card to begin with, it is always a good idea to have a reasonable limit.
Maintain a good credit mix – Having a skewed portfolio may indicate credit hungry behaviour to a lender, especially if you tend to lean towards unsecured products such as personal loans or credit cards. Throw in a healthy mix of secured products as well, and you are likely doing your credit score a favour.
Remember though that there is no quick-fix solution to increase credit score. It is an exercise that takes some amount of time and financial discipline. However, once you put your mind to it, it is only a matter of time before your score gets back on track.
When you’re next applying for a credit card or a loan is when your credit score will come in handy. Hence it is never too late to get on the path to good credit health.