You applied for a loan recently and your bank rejected the application citing poor credit score. Now you stare at your credit report wondering where you went wrong. Well, if it makes you feel any better, you aren’t the only one. The problem of low credit score is fairly common in India as well as abroad. Even the reasons are the same everywhere which include late payments, high credit utilization, etc. The good news is that it’s possible to improve your score and you can do it yourself.
To put an end to the problem of low cibil score once and for all, take the following steps:
Checking your cibil report should be the first step on your agenda as it can help you understand where exactly you stand today in terms of financial management. You can check the history of your EMIs and credit card payments and see how many of them were reported “late” by the bank. If there are any discrepancies, then you can also intimate your bank about them. When these mistakes or errors are removed, you score shall improve automatically.
If you have never checked your credit report, then you can do it today easily. As per the RBI norms, all credit rating agencies such as Cibil and High Mark are required to offer at least one free credit report once every year. So, you can just visit their websites, fill a form, and get your report instantly.
Credit cards, when used smartly can help you save money. In fact, they can also improve credit score. However, increasing credit card debt or credit utilization can lead to low cibil score too.
Credit utilization is the ratio of your average credit card spending in a month to the credit card limit. So, if you are spending around 25,000 INR per month and your credit card limit is 50,000 INR, then credit utilization would be 50%. To improve your rating, you should keep the credit utilization below 35%.
Another thing that can hurt your credit rating is minimum payments. A minimum payment is a small portion of your credit card balance that you can pay instead of the full amount and still prevent penalties. However, when you choose this option, then you only increase your debt as the remaining amount is carried over to the next month and included in the next bill. This way, you can end up increasing your debt a lot which is bad for your credit rating.
Your repayment history has a huge impact on your credit score. So, if you have obtained any personal loans or credit cards, then you should make sure that you make the payments on time. Believe it or not, even a single late payment can hurt your score although your bank may give you around 30 days before they inform Cibil.
To prevent late payments from hurting your score, you can always enable auto debit feature if you have a bank account with the lender where you have obtained a loan or credit card from. When you do this, then the lender can deduct the EMI and credit card payment from your account every month automatically.
If your credit rating is based on just one credit format viz. personal loans, credit cards, home loans, etc. then it can’t increase after a certain level. However, if you are able to increase the credit variety, then you can increase your score too. For instance, if your history is based on credit cards only, then you can take a small personal loan. Similarly, if the history is based on a home loan, then you can get an auto loan. What matters is that you bring diversity to your credit report.
It’s ok if you feel disappointed because of a low cibil score as that’s a fair response. However, try to look beyond a minor setback and take control immediately. Good luck!