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[How to] improve your Credit History & CIBIL Credit Score

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Credit history is playing an increasingly important role in financial transactions. Almost all credit institutions today check the applicants credit report from CIBIL before deciding on loan and credit card applications. In addition to your credit report and credit score, lenders weigh a number of factors to determine if you are able and likely to repay the debt.

CIBIL Credit report is a snapshot of your past and current credit relationships. It is now mandatory to maintain a good credit score for getting all types of borrowings from banks, whether it is a home loan, car loan, personal loan or business loan.

What affects the Credit score?

Following are some points that can affect your credit score:

  • Irregularity in Loan repayment
  • Default in repayment of Credit card bill
  • Cheque bounce in the past
  • Many unsecured loans such as personal loan, multiple credit cards
  • Multiple applications for an unsecured loan  at the same time
  • Default as a guarantor

 

How to improve your credit score

1. Never default on EMI payment or repayment of credit card dues  Always pay your bills on time. Late payments are viewed negatively by Loan providers and may affect the chances of your loan getting approved.

2. Don’t over leverage your financial position –  Keep your balances low. While the balances on your loans will only reduce over time as payments are made, you must be diligent about making timely payments on your credit cards. Also, you should control your utilization. For example, if you have used Rs. 90,000 out of a credit limit of Rs. 1,00,000, this may be viewed negatively by  a Loan provider. It’s always prudent to not use too much credit.

Rule 3: Maintain a healthy mix of credit. Do not take too many credit cards – Your credit history should contain a mix of a home loan, auto loan and a couple of credit cards. A high number of just credit cards may affect the chances of a loan approval. Because credit card offers easy access to finance, & is most expensive form of credit. More the number of credit cards with high utilization, larger are the payments resulting from its high rate of interest.

Rule 4: Apply for new credit in moderation – Don’t be Credit Hungry –   If you have made many applications for loans, or have recently been sanctioned new credit facilities, a Loan provider is likely to view your application with caution. This ‘Credit Hungry’ behaviour indicates your debt burden is likely to, or has increased and you are less capable of honouring any additional debt.

Rule 5: Think twice before closing credit card accounts – While, using credit cards may negatively impact your credit history, unused credit cards actually imply that you are financially secure. This makes Loan providers view your application more favourably.

Rule 6: Monitor your co-signed and joint accounts monthly – In co-signed or jointly held accounts, you are held equally liable for missed payments. This is extremely important because your joint holder’s negligence could affect your ability to access credit when you need it.

Rule 7: Review your credit history at least every year to ensure that CREDIT REPORT accurately reflects your current financial status.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please comment below

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The author is a Chartered Accountant and loves to write about Personal Finance, Wealth Management, Taxation etc. Disclaimer - The articles on this website is for informational and knowledge purposes and should not be treated as financial advice, Please consult your financial advisor before taking any investment decision.

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