A credit score is an important financial measure that determines your ability to borrow money. Missed EMI payments, delays in paying credit card bills, over utilization of credit are some reasons that may cause a fall in the score. If you have a low CIBIL score, and are looking for ways to get your life back on track, you are at the right place. Here we will give a complete guide to what you should do and what you shouldn’t do if you want to fast track your journey to improve CIBIL score.
Review your credit report- Check your CIBIL report to identify the reasons of a low score. A careful review will help you assess your credit behaviour. It will serve as an eye opener as to how small things like a delayed payment can have a drastic impact on your credit score. Also look for negative entries on your report that you may not recognize. If you spot any inaccurate information report it immediately as you may be a vicitim of identity theft. Disputing and getting errors corrected will help to increase credit score.
Pay your bills on time- The simplest way in which you can contribute to increase credit score is to ensure timely payment of EMIs and credit card bills. Payment history makes up 35% of your score. Even a single missed or delayed payment can bring down your score drastically. Sign up for payment reminders through email or phone or set up automatic payments to avoid missing payments. If you are already behind on your payments then create a plan to pay back your debts systematically. Keep a check on your spending habits. Trim down your expenses. Talk to your lenders to work out a mutually convenient way of paying down the balance. Take care of accounts that are more than 90 days late. If your account ends up in collections it will be very damaging to your score.
- Pay the card balance in full- Credit card balances attract a very high rate of interest. It is best to pay the card balance in full each month. People who pay only the minimum amount due, usually end up falling into a debt trap.
- Keep utilization levels low- Keep your utilization levels to below 30% of available credit limit. It works well to improve CIBIL score. You can set up alerts that notify you when you reach a certain limit.
- Do not close your old credit cards- The length of the credit history or the average age of accounts affects the credit score of an individual. Keeping old cards active contributes to this factor positively. Moreover if you close your credit cards, your total available credit limit on all your cards decreases, thereby increasing your overall utilization ratio. For example if you have 2 cards each with a credit limit of 50,000/- and a card balance of Rs 25,000/- (on 1 card) then your utilization will be 25,000/1,00,000 i.e. 25%. Closing one card will reduce your total available credit limit by 50,000/- Your new utilization level will jump to 25,000/50,000 i.e. 50% thereby causing a hit to your score. Hence if you wish to increase credit score never close your old credit card accounts. Use the card for small purchases and pay off the balance at the end of the month to keep the card active.
- Do not apply for multiple credit cards in a short span of time- Each time you submit an application for a credit card, a credit enquiry hits your credit report. Multiple hard enquiries in a short span of time display a credit hungry behaviour. This will decrease your credit score.
- Do not expect a change too soon- There is no quick fix to improve CIBIL score. A strong positive history develops over a period of time with consistent and responsible behaviour. It needs a lot of hard work, patience and dedication to improve your credit position before you can see some positive changes in your score.
It isn’t as hard as it may seem in the beginning. Knowledge of the factors that contribute to your credit score, a systematic plan to work on those factors and dedication to bring about change is what it takes to repair your credit.