In a previous post, we discussed the basics of a credit report and credit score – hope many of you have accessed your free credit report and checked your credit score as well. If your credit score was in the 750-900 range, congratulations – you’re sorted 🙂
However, if your credit score is not in this range, it can be a problem as banks may deny a loan just when you need it most. No worries, a poor credit score is not permanent and you can get it back to the >750 level. Here are 7 ways to improve CIBIL score:
1. First and foremost, check your credit report
Now that you’re eligible to get a free credit report every calendar year, you should make the most of it. Checking your credit report lets you see information being reported about you. In case there is any discrepancy, especially regarding defaults or delayed payments, or in rare cases, a loan/card you never even took, you can raise a dispute so the bank can get it corrected within 30 days. Any revision of credit score will happen only after that.
2. Pay off old debts; make future credit card and bill payments on time
Seems simple in theory but a lot of people tend to delay their credit card or other bill payments. So long as you’re not looking for a loan, you may not care but if you apply, and your application is rejected due to a poor credit score, then this bad habit is going to hit hard. Ensure you make all payments on time and always repay credit card dues in full – do not revolve credit. Your can download Walnut and keep a track of your upcoming bills so you never miss a payment.
3. Retain your oldest credit card
Got multiple credit cards and are thinking of giving up some of them to improve your credit rating? Ensure you retain the oldest one. If you’ve been making payments on time, an indication of good credit over a longer time frame indicates greater stability and credit worthiness compared to a recently acquired card.
4. Keep an eye on your credit utilisation ratio
The credit utilisation ratio indicates how much credit you’ve used up from your available limit and ideally, it should not exceed 30%. Secondly, if you have multiple cards and are looking to give up some of them, remember that doing so can suddenly cause this ratio to shoot up, as your spends remain the same but as a higher percentage of a lower overall credit limit now.
5. Enhancement of credit card limit
Based on your current score and your card usage, banks periodically make an offer of enhancement of your credit limit. You are under no compulsion to accept it and this is not counted as a hard hit. However, accepting it can boost your credit utilisation ratio provided you don’t go overboard with maxing this increase in limit.
6. Get a secured credit card
If you have a poor credit score, you can approach banks to issue a secured credit card against a fixed deposit. Not only is the credit limit lower, this also ensures that in case of a delay in payment, the bank recovers the money from the deposit. Repaying your outstanding dues on time helps rebuild your credit score.
7. Avoid applying for new loans or credit cards, and at the same time
If you have a poor credit score and apply at multiple banks for additional loans or a new credit card within a short span of time, this indicates you’re credit-hungry. Each prospective lender sees the low score and previous enquiries and rejects the application, leading to a vicious cycle and further lowering your score.
While these methods will eventually improve CIBIL score, keep in mind that it is not instant and can take several months for the change to reflect, depending on the type of enquiries in your credit report.
Moral of the story: Keep good money habits and avoid getting a poor credit score in the first place 😉