How to Improve a Low Credit Score?
CIBIL score plays an important role in availing debt tools, especially in the case of unsecured advances like personal loans. Therefore, individuals should always try to maintain a financial discipline that helps improve CIBIL score and be cautious about practices that can hamper it. Credit rating agencies analyse an individual’s credit record based on his/her various financial behaviours. Following are a few ways that can help improve this score effectively over time.
- Make timely repayment of advances
Repayment practices weigh remarkably at 35% in credit score calculation. Therefore, borrowers should always keep all types of credit repayment their financial priority. While lending, all financial organisations carry an associated risk of repayment default. Thus, they assess the CIBIL score of applicants to decide whether they should lend or not based on the risk involved. Timely repayment of monthly dues thus only improves one’s credibility as a borrower.
- Keep credit utilisation ratio in check
Another method of improving this rating is by maintaining an ideal credit utilisation ratio, which determines 30% of the score. As per financial institutions, this ratio, which represents the total percentage of available credit utilised, should ideally be kept within 30%. In that case, availing an extended credit limit can help individuals to maintain this ratio within the said threshold efficiently while fulfilling their funding needs.
- Check for any credit report errors
Moreover, individuals should also check their credit report thoroughly for accuracy. The recent payment transactions may not be listed yet or some mistakes could have occurred while updating information. On finding any such errors, borrowers should apply for rectification immediately. They must remember that a small error can also pull down their score significantly, and keep them from meeting the eligibility criteria.
Must Read: Know About Credit Rating Agencies in India
- Avoid multiple loan application at one time
When applying for credit lines like a personal loan, individuals should refrain from submitting multiple applications to different lenders. It invites multiple hard inquiries on their credit score and represents a credit-hungry behaviour, thus not being considered a good sign by lenders.
Lastly, individuals can also maintain an extended credit history with timely repayment records to help improve CIBIL score.
