When asking for a loan, one of the essential things that a lender, such as a bank, would evaluate is your CIBIL score. A three-digit number ranging from 300 to 900 represents a person's previous or existing loans and credit cards, i.e., their creditworthiness. A credit history is a record of debt repayments made by a borrower. A credit report is a borrower's credit history record that may be accessed from various sources, including banks, credit card companies, collection agencies, and government authorities.
It takes time to establish a credit score, and attaining an appropriate credit score usually takes 18 to 36 months or more of credit activity. Moreover, you can download the GroMo mobile application to learn more about credit scores. Also, you can apply for multiple financial products like credit cards and get approvals if you have a healthy credit score. You can also learn tips to improve your credit score through the GroMo Academy. Download the GroMo App Today!
Importance of Credit Score
When an applicant asks for a loan at a bank or financial institution, the lender first looks at the applicant's CIBIL score and report. If the CIBIL score is low, the bank may not even consider the application. If the CIBIL score is high, the lender will look into the application and consider other variables to determine whether the applicant is creditworthy. "The CIBIL score functions as a first impression for the lender; the higher the score, the greater your chances of the loan being assessed and authorised," according to the HDFC bank website. The choice to lend is entirely up to the bank, and CIBIL has no say in whether or not the loan/credit card is approved."
Ways To Improve Your CIBIL Score
Below are some ways you can consider improving your credit score. However, it is essential to note that your credit score will not improve overnight, and you need to be patient to witness the improvement in your credit score. The list of ways to improve your credit score is as follows:
1. Stay Vigilant About Your Credit History
Check your CIBIL score regularly and report any anomalies. CIBIL may make mistakes when updating your data, such as adding incorrect information to your report or delaying recording facts. It's conceivable that a loan you've paid off hasn't been updated on your credit report, which might hurt your credit score. If you discover any such errors, rectify them immediately away.
2. Keep an eye on your Guaranteed & Joint Accounts.
"In co-signed, guaranteed, or jointly owned accounts, you are considered equally accountable for missed payments," according to HDFC Bank. The negligence of your joint holder (or the guaranteed individual) may impair your ability to obtain credit when needed. It is advised to avoid becoming a joint account holder or a loan guarantor."
3. Pay your Bills Promptly
Set payment reminders and exercise credit discipline. How you handle current debt might significantly influence your credit score. Late EMI payments result in a penalty and harm your credit score. "If you want to improve your CIBIL score, pay your dues on time and rack up a good score," says the HDFC Bank website. Use a service that allows you to automate bill payments, so you don't miss any deadlines.
4. Maintain a Well-Balanced Credit Mix
It is ideal to have a healthy mix of secured loans, such as house and vehicle loans, and unsecured loans, such as personal and credit card loans, with long and short durations to build a solid credit score. An excessive amount of unsecured loans may be seen negatively. Request new credit up to your credit limit. Apply for new credit only if you need it and can afford to repay it, not because you want it. A high level of debt may also harm your credit score.
5. Use Credit Responsibly
Avoid taking on too much debt at once. Keep the number of loans you apply for in a particular time frame to a bare minimum. To avoid a reduction in your credit score, pay off one debt before taking on another. Your credit score will increase if you take out a loan and successfully repay it.
6. Build Your Credit History Gradually
You may want to go with a lengthier term to keep your EMI low when taking out a loan. You should also think about boosting your credit limit. It does not indicate that you will increase your spending. You should have much more credit and keep your utilisation low to improve your credit score. You may build a solid credit score over time, allowing you to obtain quick and low-cost loans.
7. Avoid Withdrawing Cash From ATMs
I hope you haven't succumbed to the allure of cash advance limits on your credit card. However, if you have, you should settle any overdue debts as soon as possible. It makes no difference if you have a savings excess from a fixed deposit, recurring deposit, mutual funds, or any other financial instrument. The difficulty with withdrawing cash from your credit card is that interest accumulates immediately, unlike a retail transaction, which provides a cardholder with 20-50 days of interest-free credit. With a cash advance, your bills skyrocket, and your credit score plummets instantly. As a result, it's a fatal flaw you should avoid at all costs.
These are some of the proven ways that you can consider to improve your credit score. Moreover, you can take the help of a financial advisor to learn more about tips to improve your CIBIL score. Also, you can download the GroMo mobile app to join the GroMo Academy and gain more financial knowledge.