Credit score is the most important financial number in today’s times. It determines your ability to borrow money as well as the interest rate that you pay on these borrowings. An excellent credit score helps you get the most favourable interest rate and reduces your cost of borrowing. If you are planning to take a home loan in near future, you must make sure that your credit profile is in good shape. Difference of even half a percentage of interest rate translates into thousands of rupees over the lifetime of the home loan, which usually has a long tenure.
If you haven’t paid much attention to this magical number till now, and do not have a very good score, don’t despair. There are ways in which bad credit can be repaired. But it requires dedication and patience, since it takes a while before you can start seeing results of your efforts. Here are 3 best ways to improve CIBIL score.
Start making payments on time
One of the most important factor that constitutes your score is the payment history. The credit bureau keeps a detailed record of whether you’ve been making on time payments or not. It has all the information of accounts that are past due as well as those that went for collection. All this information goes in the making of your CIBIL score. Hence the perfect way to get your credit score back on track is to make sure that you make payments for all your financial obligations on time. Recent positive activity will help in offsetting the previous negative remarks. Prepare a monthly budget and stick to it, so that you stay on track with the payments. If there are way too many bills that you can manage, consider consolidating your debts. Set payment reminders.
If you do not have sufficient funds to honour your obligations in a particular month, talk to your creditor in advance. If you have a genuine reason, your creditor might shift the payment due date by a few days or months. This will help in avoiding a late payment black mark on your credit report. Remember even a single missed or late payment can bring your score down.
Apart from the future payments, try to bring all your open accounts current. Deal with your past due bills before they go into collections. Payments that are more than 90 days late and accounts that are sold to a collection agency will bring a sharp reduction in the CIBIL score.
Keep a check on your credit card balances
Apart from payment history, another factor that has a major impact on the CIBIL score is the credit utilization ratio. This ratio is calculated by dividing the credit card balances by the total credit limit. People who max out their card limit have a high ratio and tend to be high risk borrowers who may default on their payments. The lower the ratio, the better it is for the credit score. By paying down your credit card balances you help in keeping this ratio low and improve CIBIL score.
If you have huge credit card debts, consider taking a personal loan to consolidate them. You may get a lower interest rate than what you might be paying on your card balances. Moreover, by freeing up your credit limit you will reduce your utilization ratio and help improve CIBIL score.
Though it is necessary to have some credit card activity each month in order to have a good score, do not charge more than 30% of your credit limit. Also remember, even if you do not carry your balances to the next month and pay your bill in full, you may still have a high utilization ratio. That is because most bureaus use the statement balance to calculate the credit utilization ratio. If you use your credit card for most of your purchases, consider paying the credit card balance twice a month. This will help in keeping the utilization levels low.
Fix mistakes on credit report
Mistakes in credit reports can also be responsible for bringing your score down. For example if a payment that you made on time is recorded as late, it will affect your score negatively. Clerical errors, identity theft issues are other reasons why there may be errors on the report. That is why it is always recommended to check your CIBIL report regularly and analyse the information to make sure that the records are correct. If you find any discrepancy, you must dispute it with the bureau. Report the mistake to the bureau, and also talk to the concerned lender. Provide necessary proof to validate your claim. Once incorrect information is knocked off your credit report it helps to improve CIBIL score.
So get your free report from the credit bureaus and start working on your credit score.
Credit Sudhaar 