What is CIBIL Score

Building up a positive financial image is key in the present world, and that is where your CIBIL score comes into play. CIBIL is the Credit Information Bureau (India) Limited, and your CIBIL score is the numeric representation of your creditworthiness. It is measured on a scale of 300 to 900, where a higher number represents a good credit rating and a credible borrower. CIBIL Scores can help or hinder the chances of getting loans, credit cards and sometimes life insurance policies. That is all that we can assist you with on this topic.

How is Your CIBIL Score Calculated?

Your CIBIL score is calculated using a complex algorithm that considers various factors from your credit report. These factors include your payment history, where on-time payments significantly improve your score. Another factor is your credit utilisation ratio, which is the amount of credit you're using compared to your limit (lower is better). Credit inquiries are also considered; too many inquiries in a short period can be negative. Lastly, the length of your credit history matters– a longer history with responsible management positively impacts your score.

How to Check Your CIBIL Score Online

Checking your CIBIL score online is a quick and convenient process. You can access your score for free once a year from the CIBIL website or app. There are also paid options that provide more frequent updates and additional credit report information.

Reasons for a Low CIBIL Score

Several factors can contribute to a low CIBIL score. Here are some of the most common reasons:
High Credit Utilisation: Several factors that contribute to this include charging your credit cards to the limit or using almost the entire available credit limit.
Late Payments: One of the things that lead to a lower score include missing or being behind on loan or credit card payments.
Too Many Loans or Credit Accounts: This refers to a situation where one has many open accounts in loan or credit cards, which, when not appropriately managed, qualifies as credit risk.

High Credit Utilisation:

Credit utilisation ratio refers to the percentage of your credit limit you are currently using. Ideally, you should keep your credit utilisation ratio below 30%. Keeping your balances low demonstrates responsible credit management and improves your CIBIL score. Credit bureaus generally view a high credit utilisation ratio as a sign of potential credit risk.

Late Payments

Late payments on loans, credit cards, or even utility bills can significantly damage your CIBIL score. Even a single late payment can negatively impact you, so prioritising on-time payments is crucial for maintaining a good credit score. Short delays (30-60 days) can still hurt your score, but the damage might be somewhat limited if you have a good payment history otherwise. Extended delays (over 60 days) can significantly lower your score and can stay on your credit report for up to seven years.

Too Many Loans or Credit Accounts

While having a diverse credit mix (both secured loans and unsecured credit cards) can be beneficial, having too many open accounts can be seen as a credit risk. Apply for new credit only when necessary and manage your existing accounts responsibly.
For example, Rahul has only two credit cards, which he manages responsibly and keeps the balances low. Priya has five credit cards and a recently opened personal loan. While she makes minimum payments on time, she occasionally maxes out her credit cards. Due to having more accounts and potentially higher credit utilisation, Priya's CIBIL score might be lower than Rahul's, even though they both make on-time payments. This is because having too many open accounts can be seen as a sign of needing more credit, which lenders might view as a risk.

How to Improve Your CIBIL Score

Maintaining a healthy CIBIL score requires vigilance and responsible credit management. The key lies in proactive monitoring. Regularly check your credit report for errors and ensure all information is accurate. Develop a habit of on-time payments for all your loans and credit cards. Manage your credit utilisation by keeping your credit card balances low. Additionally, avoid applying for too many new lines of credit in a short period. By consistently demonstrating responsible credit behaviour, you can gradually improve your CIBIL score and unlock better financial opportunities in the future.

Check Your Credit Report

Monitoring your credit report regularly is essential for maintaining a good CIBIL score. You can access your credit report for free once a year from the CIBIL website or app. Review the report thoroughly for any errors or discrepancies, such as incorrect credit accounts, late payments that you've already resolved, or identity theft. Early detection and rectification of such errors can significantly improve your credit score.

Make Corrections to Errors

In case you find any errors in your credit report, you can directly request for corrections from CIBIL. The dispute process is very simple and can be carried out on the internet through the CIBIL website. include receipts of payments made or any communication that took place between the borrower and the lender. It thus makes sense to have these errors corrected as soon as possible in order to protect your credit standing.
Here are some examples of errors in your credit report that can impact your CIBIL score:
Wrong entries in name, address, date of birth, and PAN card number can create confusion and hinder lenders' evaluation of your creditworthiness.
If a loan or credit card you've paid off is still listed as open, it can negatively affect your credit utilisation ratio. Closed accounts listed as open can also be misleading and potentially lower your score.
You might be listed as an owner on an account you never opened due to identity theft or a mistake, which can damage your credit score.
An inaccurate credit limit can lead to a miscalculated credit utilisation ratio. If your reported credit limit is lower than your actual limit, your utilisation ratio might appear higher than it is, negatively impacting your score.
The same account appearing multiple times on your report can inflate your credit utilisation and make you appear riskier to lenders.
Lastly, missed or late payments that you have already resolved might still be reflected on your report, bringing down your score.

Note Your Credit Utilisation Ratio

Understanding your credit utilisation ratio is crucial for improving your CIBIL score. This ratio reflects the percentage of your available credit limit that you're currently using. Ideally, you should aim to keep your credit utilisation ratio below 30%. Review your credit card statements and adjust your spending habits to pay down balances and keep your utilisation low. This demonstrates responsible credit management to lenders and helps improve your credit score.

Pay Your Credit Cards on Time

Making consistent and on-time payments for your credit cards and loans is the single most important factor in improving your CIBIL score. A history of on-time payments demonstrates your reliability as a borrower and significantly boosts your score.

How Insurance Can Help Your CIBIL Score

While not directly impacting your CIBIL score, timely payments for certain insurance policies, like credit life or loan protection insurance, can be positively reflected in your credit report by some lenders. This can help improve your overall creditworthiness.

FAQs

How do a large number of personal (unsecured) loans affect your score?

Multiple unsecured loans can increase your credit utilisation ratio and raise concerns about your ability to manage debt. However, a well-managed mix of credit, including unsecured loans, can also positively impact your score.

What if you are 'credit hungry?'

Making frequent inquiries for new credit cards or loans within a short period can negatively affect your CIBIL score. Space out your credit inquiries and apply for credit only when genuinely needed.

Do late payments and high utilisation of credit limits negatively affect your score?

Yes, they do. Late payments and high credit utilisation are two of the biggest culprits for lowering your CIBIL score. Prioritise on-time payments and keep your credit card balances low to maintain a good score.

Can my CIBIL score be improved?

While your CIBIL score reflects your past credit behaviour, you can improve it over time. By adopting responsible credit habits, you can demonstrate your creditworthiness to lenders.

• Timely payments for loans, credit cards, and even utilities significantly improve your score.
• A lower credit utilisation ratio demonstrates responsible credit management.
• Regularly review your report and address any inaccuracies. Getting errors rectified can prevent them from negatively impacting your score.
• If you have a limited credit history, consider a secured credit card or small loan and manage it responsibly to build a positive track record.