As the significance of credit scores increases in order to be eligible for lower interest rates on loans and more desirable credit cards, consumers with good monetary habits must work hard to understand how to increase CIBIL score.
As you proceed in this direction, be careful not to do the following things that could harm your credit score, which are always reflective in your credit report too:
Skipping EMI payments on loans and credit card bills on a regular basis
When it comes to credit card bills and loan EMIs, financial institutions frequently give preference to borrowers who have a history of on-time payments. People also believe that credit bureaus heavily weigh your history of timely debt repayment when determining your credit score. If you know how to read a credit report and understand CIBIL score calculation, you can check it out to see how important these payments are for the calculation.
Your credit report will reflect any late payments for loans or credit cards. As a result, your credit score and rating are decreased. Additionally, these payment issues have a propensity to remain on your credit report for a very long time, which could harm your future chances of being approved for a loan or credit card. This will be shown each month when you check your credit score.
Make sure to always pay off your credit cards in full and on time. Never skip or postpone making a loan EMI payment. As a result, you would gradually raise your credit score, increasing your likelihood of obtaining credit cards and loans in the future.
Maximising the use of the available credit limit
The credit utilisation ratio is the proportion of your overall credit limit that you use each month. If you use more than 30 to 40 percent of your available credit, the credit bureaus will lower your score.
So its wiser to keep your credit utilisation between 30% and 40% of your total credit limit to avoid a decline in your credit score. Contact the credit card company and request a higher credit limit or a second card if you frequently go over this limit or are trying to understand and make efforts on how to improve CIBIL score. Your overall credit limit will increase as a result of such steps, and your credit utilisation rate will decrease.
If your credit report isn’t frequently reviewed
Even if you are accustomed to reading credit reports, have a high credit score, and want to apply for a credit card, lenders will still request a copy of your credit report from the credit bureau that did your CIBIL score calculation. This is carried out to guarantee that you settle your debts on time. Your historical and recent loan and credit card repayment patterns are shown.
If you did something you don’t remember doing, your credit report may contain evidence of suspected fraud, or it may contain inaccurate information if a lender or credit reporting agency made a mistake. The urgent need to identify and remove errors and fraudulent activity from your credit report highlights the critical need for routine credit score monitoring.
You should take advantage of this opportunity to learn how to read credit reports since you are legally entitled to one free credit report per year from each of India’s four credit bureaus. Make sure you are requesting your credit report from each of the four credit reporting agencies when using the facility to check your credit score so that you can receive a free report every three months.
Direct and persistent inquiries for credit
In order to check your repayment history and determine whether they can trust you after doing CIBIL score calculation, a lender will request a copy of your credit report from a credit bureau if you have a good credit score and want to apply for a loan. The credit bureau refers to what appears on your credit report as “hard inquiries,” which loan originators make. As a result, your credit score might decrease a few points.
You can compare lenders to find the one that best satisfies your financial requirements and qualifications. Because these services have no impact on a person’s credit score, those who use them to check their credit reports refer to them as “soft queries.”
Not keeping track of loans with guarantees or co-signers
It’s critical to understand co-signing or loan guaranteeing and to be able to read a Cibl report. By agreeing to co-sign a loan or act as a guarantor, you share the borrower’s responsibility for ensuring that the loan is repaid on time. If the linked loan was not repaid on time or at all, both the credit scores of the primary borrowers and co-credit signers would suffer.
Checking the repayment status of any co-signed or guaranteed loan accounts is a good idea. Your credit score might suffer if you don’t keep an eye on them. As a result, you might later find it difficult to obtain a loan or credit card.
In the credit mix, unsecured loans are more dominant
Credit bureaus use your credit mix, or the total of your secured and unsecured debt, along with other significant factors, to determine your credit score and for CIBIL score calculation. Many borrowers prefer secured loans over unsecured ones, such as mortgages, auto loans, and loans backed by real estate. As a result, credit bureaus favour borrowers who have a lot of secured loans. By checking your credit score, you can determine whether your credit mix has changed as a result of recent debt repayments or secured or unsecured loan applications.
In order to maintain a healthy credit mix after learning how to read a CIBIL report, you can switch out unsecured loans for secured ones like a top-up home loan (for those who already have a home loan), a loan against gold, or a loan against stocks. Pay off your unsecured debt, such as personal loans, credit card cash advances, and other loans of a similar nature, if you want to quickly raise your credit score. More secured loans will be in their portfolio as a result, improving their credit score.