Friday, 22 January 2016

Steps to rectify a low CIBIL Score

A CIBIL score is the key to every individual’s financial fitness and cannot be ignored. A good score indicates a person’s creditworthiness and is looked upon positively by every lender. With India slowly advancing towards a risk-based lending system, the relevance of credit scores will only increase given time.
What is a CIBIL score?
A CIBIL score is nothing but a credit score, generated by India’s oldest credit bureau, namely CIBIL. Given the association, a credit score is often referred to as a CIBIL score by people. Ranging between 300 and 900, the higher your score better are the chances of your being offered credit at the most competitive interest rates and other terms. This is because a lender is able to determine both the ability as well as the willingness of the borrower to repay any debt they may avail of.
Based on a certain set of parameters, the CIBIL score is the first piece of information lenders consider when extending credit, be it a loan or credit card. Hence it is imperative to maintain a good or high credit score.
What constitutes the credit score?
The below mentioned parameters are what all bureaus consider while arriving at a credit score. While individual scores across bureaus may differ slightly, the factors taken into account remain constant.
The payment history, or repayment track record as well as the amount outstanding constitute a significant part of your score, so make sure you don’t slip up.
Help! I have a low CIBIL score. What do I do?
Relax, and don’t hit the panic button just yet! While having a low CIBIL score is not ideal by any means, there are measures you can take to enhance the credit score. Given time, not only would your score improve, but you will find that getting a credit solution for all your needs also eases out.
Here are some tips you can follow in order to rectify a low CIBIL score:
Make timely payments – When your loan EMIs are due or your credit card bill comes in, ensure that you make the payment promptly. Any delay in payment – or worse, skipped payment – is likely to result in significant damage to your credit score. The longer you delay payment, more severe is the impact.
If you tend to forget payment dates owing to other commitments, consider setting up payment alerts on your smartphone. Banks and financial institutions also offer various convenient payment options including ECS mandates and standing instructions from your bank account. Avail of these to make your life simpler, and never miss a payment deadline again.
Have a healthy credit mix – Relying heavily on one type of credit (secured loans such as home and auto loans, or unsecured loans such as credit cards or personal loans) indicates a dependency on debt, when a lender evaluates your credit report. Hence, be sure to have a healthy mix of credit that will reflect well on your credit report.
If you believe that the debt is indeed tilting heavily towards one loan type, consider making changes to your credit mix.
Debt consolidation – One such option is to consolidate your debt, and reducing your existing debt burden. For instance, if you have multiple loan accounts open and are finding it difficult to service them all, consider availing of a personal loan to clear off all outstanding dues. That way, not only do you save on finance charges and steep interest rates but also have just one single loan to focus on – and which you need to clear steadily.
Credit limit utilisation – With your credit card comes an inherent credit limit, and while it does open up your avenues to make purchases, tread cautiously and be prudent in your spending. A high limit may tempt you to spend more, but remember that at the end of the day, your money will go towards paying off these bills. Hence it is recommended not to exceed 30 percent of the credit limit across cards. This will ensure that you do not fall into a continuous, downwards-spiralling debt trap.
Credit history – Seeing how much the length of credit history also matters, ensure you are able to offer a better long-term financial picture to a prospective lender. Having an old account open – one that has been consistently serviced well – can prove to be advantageous as it indicates your creditworthiness.
If you do not have a credit history, consider availing of a credit card and using it wisely. This will help you build your credit history, which will then be the stepping stone for measurement going forward, when you do require a loan and apply for one.
New credit – Do not avail of a new credit card purely because the initial offers on joining are irresistible. While it may seem good, not only will you have additional dues to pay over time, but multiple ‘hits’ or enquiries on your credit report also tend to make your score dip.
In conclusion
The first step towards rectifying a low CIBIL score would be to call for a copy of your credit report. If your score is indeed low, speak with a trained credit counsellor at a reputed credit health management company such as Credit Sudhaar. Over a period of time with budgeting and making wise financial decisions, you can enhance credit score and move to a healthy credit life.

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