What will you do if you find yourself in a cash crunch one day, and you don’t have any savings left? Chances are that you will apply for a small loan. But do you know that your application can be easily rejected if your CIBIL score is poor?
Your CIBIL score is the most important factor that banks and NBFCs consider when they evaluate your loan application. So, you need a high score if you want a loan, especially at a lower interest rate. This brings us to the main question- how can you improve CIBIL score?
The first thing that you need to understand is that no matter how poor your score is today, you can improve if you are willing to do the work. You may not get the desired results within days, or even weeks. However, if you are committed and take the right steps, then nothing can stop you from building an impressive credit. All you have to do is take the following steps:
1. Check Your Report
The first thing you need to do before you can start working on your CIBIL score is checking your credit report. Only then you can see what your current score is and how much work do you have to do to increase it to a decent level (a score that’s equal or above 750 is considered good).
You can also go through other important details in the report which include personal details, previous loan’s details, repayment history, income, etc. If you see any mistakes in these details, then you can have them corrected which will improve your score.
As per RBI’s norms, you can receive one free CIBIL report every year. Although you can get your report as many times as you want for a small fee. You can check CIBIL’s official website for more details.
2. Start Using a Credit Card
Using a credit card is one of the simplest and most effective ways of improving credit score. This is because when you use a card and pay the bills on time every month, then it builds trust and increases the score. Plus, you can save money too as many credit cards offer perks like cash back offers, discounts, reward points, etc.
3. Checking Credit Utilization
If you are already using a credit card, then check if you are spending more than necessary every month. Ideally, your credit utilization shouldn’t be more than 35%. For instance, if your credit card limit is Rs. 1 lakh, then you shouldn’t spend more than Rs. 35,000 per month as it affects the credit negatively which you can easily verify through a copy of your free CIBIL report.
If you need to spend a lot of money with credit cards every month, then it’s better to get multiple credit cards. This way you can lower your credit utilization without compromising with your spending habits.
4. Get a Joint Loan
Apart from credit cards, small personal loans and home loans also help in building a credit score. Although you should try to get a loan all by yourself, if you are having trouble with that, then you can get a joint loan instead.
When you apply for a loan with a co-applicant, especially if they have a good credit history, then it’s easier to get a loan. However, the benefit of repayment in terms of credit score is shared equally between the borrowers. So, when you take a loan with someone who has a good credit, then you can improve CIBIL score along with them using their merit.
So, there you have it- some of the most recommended tricks that you can use to build credit. However, there are a few other things that you should keep in mind. For instance, you should never become a loan guarantor for someone who you don’t fully trust even if they are a family member. This is because if they fail to repay their debt, then you can greatly hurt your own credit score. Also, never underestimate the consequences of late payments. Whether it’s credit card bills or loan EMIs, every single payment should be made on time if you want to improve your score faster. Good luck!