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What is Credit Rating & How to Improve Cibil Score

How to improve your credit rating

There are many who have experienced the disappointment of a rejected credit card or loan application! Many know the feeling when in dire times, that personal loan wasn’t sanctioned because the ‘credit score’ was not good enough!

In the past few years, as the term ‘credit score’ has attracted much attention and understanding, it is the first step to improving it.

What is a credit score?

In simple words, credit score is your rating with banks and financial institutions which is based on your record of repaying loans / credit card bills and your current credit health. Therefore, if your repayment track record is good and you do not have too many loans to repay presently, then your credit score is good, and this makes you an eligible customer for bank loans and credit cards.

A good credit score assures the bank that you are capable and responsible when it comes to the repayment of any kind of loan from it. On the other hand, a bad credit score can be one of the major reasons for the rejection of loans /credit card.

Credit rating in India

The Credit Information Bureau (India) Limited (CIBIL) maintains repayment track records of individuals and companies. In fact, the Reserve Bank of India (RBI) has mandated banks and financial institutions to check the CIBIL score of every loan / credit card applicant before approving the same. In a way, this process is a safeguard against banks’ loans into turning into non-performing assets (NPAs).

What is a good CIBIL score?

CIBIL score ranges from 300 to 900 and the higher your score is, the better score you have. According to CIBIL, a score above 700 is considered good.

A good credit rating can help in the following ways:

  • Faster approvals of loans / credit cards
  • Better interest rates
  • Longer repayment period
  • Higher credit card limit or loan amount

How to improve your credit score?

The good news is that in case you haven’t been very careful about your credit score so far, you can still take a few simple but persistent steps to improve it.

  • 1) Check your credit rating report: You can get access to this report for free on the CIBIL website. Check if it is accurate and know your score. In case you find any inaccuracy in it, you can report and dispute it. And knowing your correct credit score will help you get an idea of the amount of efforts required to improve it. Check this report once a year.
  • 2) Pay up the balances: Credit cards can play a major role in your credit rating. If there are unpaid dues on your credit card, then negotiate with the bank to waive off or reduce the interest on it and pay them off as soon as possible.
  • 3) Check your credit card spending: It is recommended that you use your credit card only as much as you can repay by the billing date.
  • 4) Limit your credit utilization: Do not use credit card for every spending. The frequency and percentage amount of credit you use has a big role to play in your credit rating.
  • 5) Leave credit card accounts open: Closing a credit account may not help your credit score. Instead leaving a credit card account open and making regular payments of dues there will help.
  • 6) Avoid applications for multiple loans / credit cards in a short period: Your current loans, applications for more credits, etc. are all visible to banks and financial institutions. Therefore, applying for too many within a short period of time will make you look credit hungry and hence, someone to be wary of for banks.
  • 7) Do NOT delay or miss credit card bills / EMIs payments: Credit card dues or loan EMIs, ensure you pay them on time. This little effort will not only bring financial discipline in life, but also go a long way in maintaining a good credit rating.
  • 8) Be patient & persistent: Just as a credit score is not damaged overnight, neither does it improve quickly! So be patient and continue to take steps towards improve it. And once you achieve a good credit score, ensure to maintain it so that anytime you need a bank loan or credit card for desperate times, banks are at your service!

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