Your CIBIL Score is a vital indicator of your financial health. Learn how you can improve your credit score with four handy tips and just a little help from Bajaj Finance.
Since your CIBIL Score affects your ability to get credit and the terms on which you get it, it’s important to ensure that it’s in good shape. It might sound technical, but it’s actually quite straightforward. So, let’s begin with the basics.
Understanding your CIBIL Score
Think of your three-digit CIBIL Score as a grade that reflects your creditworthiness. Ranging from 300 to 900, it’s calculated based on a variety of factors that come together to form your score, like your:
- Payment behaviour
- Credit utilisation
- Credit history length
- Credit mix
- Credit enquiries
Keeping an eye on your CIBIL Score and understanding the factors that affect it will empower you to take the necessary steps to improve your score and take control of your financial future. An ideal CIBIL Score of 750+ ensures you a hassle-free borrowing experience, but if your credit score isn’t quite there yet, there’s no need to panic as there’s always a way to improve it.
To begin with, here are four simple tips to boost your CIBIL Score and pave the way for better financial opportunities.
Tip #1: Maintain a consistent payment history
Have you ever heard the age-old saying, ‘Consistency is key’? Well, it applies to your credit score as well! One of the most significant things you can do to maintain a good CIBIL Score is to pay your bills and loans on time as your payment behaviour has a whopping 34% weightage in its calculation. Late payments and defaults can drag your CIBIL Score down instantly and remain on your credit report for up to seven years, upsetting your future attempts at securing credit as well. As a result, lenders view you as a risk and saddle you with unfavourable terms and high interest, or worse, reject your credit application.
Therefore, it’s imperative to ensure timely payments. If you struggle with that, consider creating reminders or automating your payments so that you never miss a deadline again. Remember to budget for these expenditures and maintain the required balance for their deduction. When you stay on top of your payments, you avoid unnecessary fees and interest charges, and build a positive credit history with long-term benefits.
Tip #2: Manage credit utilisation ratio
Moderation in all things ensures balance and harmony, and the same can be said for your credit utilisation ratio. This refers to the amount of credit you’re using compared to your total available credit. It’s a lot like eating pizza: if you eat an entire pizza all by yourself, not only do you come across as being greedy and incapable of controlling your appetite, you also risk making yourself physically ill. Similarly, if you use the entire amount of credit available to you, you come across as excessively dependent on credit and unable to manage your finances well. This will inevitably hurt your financial health and bring down your CIBIL Score.
It’s advisable to use not more than 30% of your available credit: so, if your total credit limit is Rs. 50,000, try not to exceed Rs. 15,000 in expenditure. To improve your credit utilisation ratio, you can pay off your debts and reduce your outstanding balances, negotiate a higher credit limit with your lender, and monitor your credit card usage closely. In this way, you can demonstrate to lenders that you’re reliable with credit management and improve your overall creditworthiness.
Tip #3: Diversify your credit portfolio
Variety is the spice of life and something lenders look for in your credit report. A diverse credit portfolio proves that you have experience in managing different types of credit and are a responsible borrower. So, try to maintain a healthy credit mix, comprising credit cards, secured loans like a home or a car loan, and unsecured loans like a collateral-free personal loan. Gradually adding new types of credit accounts over time can help improve your credit score, provided you manage it effectively. However, it’s important only to apply for new credit only when you require it and can afford to repay it. Otherwise, you might end up doing more harm than good.
Tip #4: Review your credit report regularly
As the wisdom of elders has always taught us, ‘a stitch in time saves nine’, it’s crucial to review your credit report regularly. Your credit report is a record of your credit history and is also prone to human error. If these errors aren’t identified and addressed in time, they might be detrimental to your CIBIL Score. So, check your credit report carefully for any mistakes, inaccuracies, omissions, or fraudulent activity that might be pulling your CIBIL Score down.
Immediately contact the credit bureau to dispute and rectify discrepancies you find so that your credit report accurately reflects your financial performance.
Bajaj Finserv Credit Pass offers you all the tools you need to put these suggestions into practice and more. Its personalised dashboard offers you a complete overview of all your credit accounts so you can track upcoming payments and never miss a deadline. Use its Credit Score Simulator and EMI Calculator to make informed choices before applying for credit, and utilise the real-time credit health report and unlimited credit score checks to closely monitor financial health and the factors that affect it. Remember, improving your CIBIL Score sounds more overwhelming than it actually is. It might take effort and patience, but it’s well worth it to pave your way to a healthier credit profile.
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