Anil Mehta had been grappling with his credit card dues for a while, after which he spoke to the credit card issuer and a payment settlement was amicably arrived at. This made Anil happy, and all was well financially until Anil applied for a home loan. This time, his application for credit was rejected because his credit score was low – a direct fallout of the issue with his credit card payments and subsequent settlement. Hence, Anil now had to put off purchasing his dream home and instead work on repairing his credit score, a task which while not impossible, did put his plans on the back burner for some time.
Getting a good credit score might not be difficult to begin with, but to maintain it can be quite a challenge, especially for those with even a slight lack of financial discipline. However, with all lenders across the country today checking the credit score before extending any credit facility – be it a loan or credit card – it becomes even more important to not only have a good score but to enhance it as well. With a poor or low score, the borrower tends to lose out on the best, most competitive loans especially with regards to interest rate, leading to potential loss – their opportunity to save money over the long run with the best interest rates diminishes.
What is a CIBIL score?
CIBIL is India’s first credit information company or credit bureau. As a result very often, a credit score is referred to as a CIBIL score colloquially. However, a credit score obtained from any credit bureau measures the same parameters, even if the score itself differs slightly.
How to improve CIBIL score
Remember, much like physical fitness, you need to work at staying financially healthy. Let us then take a look at three sure shot ways in which you can improve your credit score.
Make payments on time – While getting a loan or credit card may not be very difficult, there are always monthly obligations that go with it, in the form of either EMIs or bills that need to be paid. Not paying bills on time not only means you shell out extra by way of finance charges, late payment fees, steep interest rates and applicable service taxes, but it also can mean a decline in your credit health. Ensure that you have your finances sorted to make these payments on or before the due date, as every delayed or skipped payment can be a nail in your credit coffin.
A fair number of people tend to skip making payments not because they wilfully intend to default, but because they tend to forget the payment due dates. If you fall under this category, in today’s technological times, it is easy enough to keep track of your payments. Download apps onto your smartphone or tab that help you with this task, set payment reminders and opt for payment alerts from the concerned financial institutions.
Further, making full payments also helps maintain financial discipline as rolled-over payments only attract heavy interest charges and fees. While it may not affect your credit score directly, the tendency to consistently roll-over payments may just land you in a debt trap, if you are not careful. And that is a payment behaviour that can land you in trouble.
Use credit wisely – When you receive a credit card, it comes with a pre-set credit limit, one that determines how much you can spend on the card. While it is always thrilling to see a high credit limit, there may just be a downside to that: a higher limit may tempt you to spend more than what your means to repay are. Hence, it is always recommended to stay within the credit limit, and not over-extend yourself. Remember, when the card bill comes in at the end of month, you will need to repay it. And while the available credit limit may be high, the means to repay (your income) is finite and overspending can therefore kill any budgeting you might do.
On the other hand, having a high credit limit can be useful if you keep your credit utilisation low, as it means you have a lot more credit at your disposal. The recommended usage, i.e. the credit utilisation limit across all your credit cards is 30 percent, constantly exceeding the same may be asking for trouble.
Retain ‘good’ old debt – If you have a credit card that you have been servicing well over the past few years, do not close the account. Maintaining this account can prove to be a boon, as it shows your reliability as a borrower, your ability to repay bills on time and can work as a good measure of your credit behaviour to a prospective lender.
Old debt creates an impression of longevity, and helps boost your credit score – something that every lender takes into account when approving a fresh line of credit.
Of course, to maintain an impeachable record, do ensure that you pay all outstanding bills on time and do not rack up any overdue amounts.
In conclusion
The first thing to get started with is to call for a copy of your credit report. This will help you understand what your current credit score is, and how you can better it. Given time and some financial discipline you will be able to enhance your credit score successfully.