If you are looking for loans or credit cards you would have to first take a look at your CIBIL score. CIBIL score, also called credit score, is the yardstick with which lenders judge your creditworthiness. The score is calculated by approved credit rating agencies and depends on your credit history, both past and present. The score ranges from 300 to 900. The higher the score the better would be your credit rating and the easier it would be for you to avail a loan. Lenders usually insist on a credit score of at least 650 to offer loans. If your score ranges from 350 to 550 it is considered as a bad score. No lender would offer you a loan at this CIBIL score. Does that mean that you cannot avail any loan?
CIBIL scores can be improved. Even if you have a score of 360, you can increase your score to 800 within a year. Here are the steps which would show you how –
- Make loan repayments on time
The golden rule to improve your credit score is to pay your dues on time. If you have credit cards their bills should be settled completely within the bill due date. Though credit cards allow you the facility of revolving credit you should stay away from it. Revolving credit not only attracts interest payments, but it also affects your credit score negatively. Pay off your credit card bills fully on time. Even if you have taken loans, pay the EMIs as and when they fall due. Never miss EMI payments and the score would be built over time.
- Don’t settle loans or credit cards
Settling off debt means that you have paid a full and final amount to close the debt. If you have outstanding debts and you are unable to pay them off, you, on a mutual understanding with the borrower, might decide to pay a single amount towards the debt and terminate it. The lender considers this to be a settlement of the debt. Settlement of the debt is not the same as closing the debt even though the debt has been terminated. The settlement is recorded in your credit report and it destroys your CIBIL score. Moreover, settlement remark takes a long time to be removed from your credit report. So, avoid settlement of debts.
- Don’t borrow too much
If you have too many debts, your credit utilization ratio would increase. An increase in the ratio reduces the credit score. So, avoid applying for new debts. Pay off the existing ones first.
- Don’t close your credit cards
If you are not using a credit card frequently, don’t think about closing it. Closing a credit card reduces your credit limit due to which your credit utilization ratio increases. As stated earlier, increase in credit utilization is bad for your CIBIL score. So, don’t close credit cards even when you use them sparingly.
If you follow the above-mentioned tips you can build your credit score and take it to 800 this year. Once your score is repaired you can avail and get loans too. So, build up a good score using these methods.
Additional Reading:- Mistakes That Can Ruin Your Credit Score