Tag: low CIBIL score

6 Ways to Improve Your Credit Score

If you want to give your credit score a boost, then you must understand that it won’t happen overnight. Credit score improvement is a long process. You have to be patient and just work for it. However, if you are careful enough and take the right steps, then eventually you can easily attain a promising score.

The following are 6 of the best ways to improve CIBIL score:

  1. Watching Credit Card Usage

Credit cards can help build a good credit score. However, they can also ruin it. It all depends on how you use them.

Credit utilization is one of the biggest factors that affect your CIBIL score. Using credit cards excessively leads to a high credit utilization which is harmful to your score. However, there are two ways you can tackle this problem:

  • You can limit your credit card utilization by using cash or other payment methods save for credit cards.
  • You can divide your expenses on multiple credit cards. So, if you have to buy an air conditioner worth Rs. 30,000 and you have two credit cards, then you can charge Rs. 15,000 on each.
  1. Paying Bills on Time

Plain-vanilla timely payments can do wonders for your credit score. Not only you can minimize your debt this way, you can also make a strong case for yourself for potential lenders. Banks and financial institutions simply love those borrowers who have a long history of timely payments because it’s easy to trust them with their money.

  1. Fixing Credit Report Discrepancies

How often do you check your credit report every year? If your answer to this is “once” or “never”, then maybe that’s the reason why you are unable to improve score.

There are several benefits of monitoring your CIBIL report, one of which is the identification of mistakes or errors.

It’s easy to think that a mistake or two in your CIBIL report can’t do much harm. However, it’s completely false. Mistakes in credit reports can have grave consequences that include compelling you to get a loan for low CIBIL score.

Taking an example, if your name or address is printed wrong or if there are false mentions of late payments in your CIBIL report, then your score could easily fall by hundred points or so.

Checking your CIBIL report frequently can help you find and rectify mistakes that are hurting your score. Plus, if you identify anomalies or unrecognized transactions, loan inquiries, etc. then you can also prevent a potential case of identity fraud.

  1. Adding Something New to The Mix

A singular credit history can put limitations on your score. So, if credit report contains details of only credit card usage, or a personal loan account, etc. then you can increase credit score only so much.

Even if you are doing all the right things for your score, you can’t surpass a certain limit unless you diversify your credit usage. This is because the more diverse your credit history is, the better it’s for your score. So, if your score is solely based on your credit card usage, then you can make an improvement by availing a small personal loan, auto loan, etc.

  1. Saying “No” to Minimum Payments

Minimum credit card payments and credit score improvement don’t go hand in hand. You can only choose either of the two.

Banks highlight these “minimum payments” to lure more customers into applying for their credit cards. However, minimum payments lead to debt accumulation and lower CIBIL score. So, if you really want to enhance your score then you should always pay your credit card bills in full.

  1. Debt Consolidation

Debt consolidation is not a direct but rather an indirect way to improve credit score. In this, you combine all your loans into one. So, instead of paying several EMIs every month, you need to pay just one. The result is better money management and timely payments.

Many finance experts claim that debt consolidation can help improve CIBIL score really fast, especially if pay the EMIs on time.

If you don’t want a future in which you have to look for a loan for low CIBIL score, then it’s best you start caring for your credit report as soon as possible. In fact, today is as good as any.

What’s the difference between Soft and Hard Inquiries?

Anytime someone submits a request to the credit reporting agencies to have a look at your credit report, an inquiry is generated. The information regarding the entity making the inquiry, date and reason for the inquiry are captured and recorded on your credit report. But not all inquiries are the same. The key is to understand the difference between two different types of inquiries and how they affect the CIBIL score.

Credit checks are often categorized as hard inquiries and soft inquiries. Let’s see what they mean.

Hard inquiries

Whenever you apply for a credit card, home loan, or any other kind of mortgage you give permission to the prospective lender to pull your credit score and credit report. The information in your report helps them decide whether you are worthy of giving credit or not. A high score gives them assurance that you are a worthy borrower while a low CIBIL score will usually trigger a negative response. So basically whenever you are seeking credit, the lender pulls your credit information and this is considered as a hard inquiry. Bureaus consider that each hard inquiry associated with a new loan, changes the risk factor associated with the borrower. Hence hard inquiries have a negative effect on your score. However they account for only 10% of the overall credit score and therefore bring a dip of only 5-8 points. Factors such as payment history and credit utilization have a greater weightage.

Some situations which will trigger a hard inquiry are

  1. Application for a home loan, student loan, auto loan, personal loan or business loan
  2. Application for a credit card
  3. Mortgage applications
  4. Requesting the credit card company for a raise in credit limit
  5. Responding to a pre-approved credit card offer received.

Soft inquiries

Some situations which generate a soft inquiry are

  1. Initial checks by credit card companies and other loan providers who offer you pre-approved loans.
  2. Background checks conducted by potential employers to ensure that the candidate is a responsible individual with good credit.

 

  1. Periodic checks by credit card issuers to analyse your lending behaviour.

Soft inquiries do show up on your credit report but they are not factored in the credit scoring models. So if you have a low CIBIL score, you need not worry about soft inquiries as they do not affect your credit score at all. Most importantly when you request your own report and score from any of the three credit bureaus, it is counted as a soft inquiry. So doing a self-credit check doesn’t hurt your score at all.

How can one minimize the no. of hard checks?

If you have a very good credit score you may not worry too much about hard inquiries as a few points will not harm you much. But in case you have a low CIBIL score and you wish to get credit in near future then you need to be careful that you are not hit with too many hard inquiries. Multiple inquiries increase your financial risk. Hence it is best to minimize these hard pulls to avoid getting a low CIBIL score. Here’s how.

  1. Before applying for loans check your credit score. Apply only where you are likely to qualify. This way you can minimize the no. of hard inquiries.

 

  1. If you are looking out for the best loan deal possible then make sure you make all your applications within a 30 day period. When credit bureaus notice that you are applying for same size loan they pick up this fact and give a 30-45 day window period for rate shopping. They combine multiple inquiries within this period into just one.

 

  1. In case your landlord wants to check your report, ask if you can submit previous rent receipts, income proofs and bank statements to prove your financial reliability.

 

  1. Time your important loans like home loans so that there is no hard inquiry six month prior to filing your application. This way even minor factors will not affect your ability to get best possible interest rate on home loans.

If you have a low CIBIL score and you are looking at ways to improve it then you must first focus on factors like payment history, credit utilization ratio and the mix of credit. These have a greater impact on your score. Potential lenders give more weightage to these factors than just the number of hard inquiries. Do not get too bogged down by the number of credit inquiries. If you have a solid credit history then temporary setback to the score caused by hard inquiries will not do much harm to your credit health.

 

Lost your job? Take these steps to avoid CIBIL score plummeting

A sudden loss of job is a very stressful event especially if one is the sole breadwinner of the family. All your financial plans and dreams suddenly grind to a halt. Uncertainty about the future and anxiety about how you will handle your expenses and pay off your debts bogs you down. In fact it can be quite overwhelming to think about the consequences of not meeting your financial commitments in time. Will unemployment affect your credit score? Let’s explore.

The fact that you are unemployed does not show up on your credit report. The credit bureaus do not factor in your employment status during the credit score calculation. Hence losing one’s job does not directly affect one’s credit score. But if you fall behind on your EMIs and credit card payments because of loss of income, it is sure to have a negative effect on your credit profile. Payments over 30 days late get reported to the bureaus and lower your score.

It all boils down to how you tackle the situation and deal with your debts during the period of unemployment. By being proactive you can ensure that your credit rating is protected even during this hardship. Here are a few important things that you should consider to deal with the situation.

Dip into your emergency fund- If you’ve saved enough money to cover for at least 6 months of your monthly expenses, then you need not worry too much. These funds are meant for such situations, as they help you stay on top of your payments while you search for a new job. But if the savings are not enough to cover your bills do not turn to credit cards, loans or cash advances to make ends meet. High interests on credit card balances and debt amounts will put additional strain on your finances and damage your credit score. Opening new loan accounts will reduce the average age of accounts and bring your score down.

 

Instead take the following steps. Not only will it help in avoiding the credit score plummeting but will help you improve CIBIL score.

Make a budget- The budget you made while you were employed won’t fit the current circumstances. Once you lose your primary source of income you need to cut down on unnecessary expenses. Eliminate all the spending that you can do without, and rework your budget. For example postponing holidays, cancelling subscriptions, cutting down on movies, dinner outings and salon visits will free up some extra cash and give you some breathing room while you figure out how to meet your debt payments. Factor in alternate sources of income like your spouse’s income, emergency funds, severance or part time income that you can rely on during this period.

Balance transfer- Consider transferring your credit card balance to a new card with an introductory offer of 0% APR. By paying no interest on your balance you can save a significant amount. Resist the urge to continue spending on credit cards. Start paying for your expenses by cash. This way you will be more disciplined in the way you spend.

Prioritize your debts- If you still fall short then you need to prioritize your debts. Figure out which debts are most important for you to service. Secured loans where you run the risk of losing your asset on non-payment should be the top priority. Unsecured loans, credit card bills can be lower priority debts. You can conserve your cash by making only the minimum payment on the credit card. Though rolling over balances will attract high interest charges sometimes you have to make tough choices to avoid defaults. Make sure you do not miss any payment and pay at least the minimum amount on time. If you delay or fall behind your payment, your credit score will be impacted.

Talk to your lenders- If you have a budget shortfall, defaulting on payments is not the only option. Remember, if your account goes into collections your credit score will take a serious hit. So it is always better to talk to your lenders and openly explain them about your financial difficulties. Express your desire to meet the obligations and ask them if they have any financial hardship programs. At times lenders agree to lower interest rates or set up more affordable repayment plans during the period of unemployment. You may even request for forbearance which will allow you to defer the payment schedule for a set period of time. Suspending payments will give you more room in your budget while you look for a new job.

Dealing with debt and maintaining your credit score is tough when you are out of job, but not impossible. Adjust your budget, talk to your lenders, use your emergency funds and resist the temptation of new debt. Careful planning and re-evaluation of goals will help you sail through this period.