Improving Your Credit Score for a happy tomorrow!

In adulthood, few numbers carry as much weight as your credit score. This three-digit number can determine your financial plans. Whether lenders approve you for a loan, the interest rates you'll pay, or the credit cards you qualify for. With so much riding on your credit score, it's crucial to understand how it works and what you can do to improve it.

How do you make your score doesn't drop? Which methods can improve your credit score? How do you correct your report mistakes?

We answer these and more questions below:

How does my CIBIL/ credit score affect me?

A lender checks a person's score to see how trustworthy he is in repaying the loan. It's a scale that measures one’s likeliness to pay back the amount.

If your credit score is good, sanctioning a loan for you will be easy. If your score is excellent (750+), you are easily eligible for loans, premium cards and more benefits.

So, credit score is one of the most influential factors in financial planning. Majorly five credit bureaus are responsible for the credit score. However, the Credit Information Bureau India Limited (CIBIL) provides the most popular and widely used information. Usually, CIBIL and credit score can be used interchangeably.

How can I improve my CIBIL score?

Rather than recovering your reduced score, the best option is to maintain and not let the score go down.

The score mainly depends on the following:

• your repayment history
• credit mix (types of loans taken)
• utilised loan amount
• recent loan enquiries.

Some measures you can take to ensure your score stays up are: 

Repayments on time 

Late repayment is a significant factor and reason for the score drop. It has affected your future repayments adversely. So, it is essential to pay the EMI fully without missing it. 

There are instances when your expenses are too much, and you struggle to repay the EMI. In that case, you could pay the minimum bill for your loan. But, paying the remaining amount as soon as possible is crucial as it can affect your score. Banks now send more than enough messages and calls to remind you of the payment.

Managing your credit card bills:

With the approved amount readily available, credit cards are immensely useful in our purchases. You can utilise the convert to EMI option for too large amounts. But make sure to pay the total amount.

In cases of minimum due payments, always make sure to repay the remaining amount as soon as possible. Otherwise, you will have to incur the interest and fines that come with it.

Credit utilisation:

Managing your credit limit is beneficial in managing your credit utilisation. Keeping your taken amount under 30% of the available amount can positively affect your report and score. Keeping the borrowed amount usage within this limit allows you to have breathing space for any unexpected expenses. 

Keeping your old credit card:

You might think your old card has lost its charm and is a waste of space.

But do not close it!!

Keeping your old credit card means you are keeping your history.

How does closing your old credit card impact your score? You also remove your past credit history by closing your old card. This action reduces the average length of borrowing history and influences your score.

Other than that, even if you are not using your old card, it still contributes to your credit limit. This limit is a significant factor that can change your credit score. The optimum limit for utilised credit is 30%, and closing your old credit card increases it.

Even with the listed benefits, you can weigh the options and decide if the credit card becomes challenging to carry.

Maintaining a good credit history

What happens if you don't borrow money from lenders?

Since you don't have a borrowing history, your CIBIL score will be “no hit”. That's as good as a 0; getting a loan with that score is difficult.

What can you do when your credit score is 0?

You can create a good credit history by managing your loans. So, take small loans and use a secured or unsecured credit card to learn how to manage your debts. This will help in building a secure and stable profile from the beginning. 

The types of loans you take are also a factor in your score. A mix of secured and unsecured loans can showcase your experience managing various debts. These loans will create a positive look on your profile and improve your score.

How can I improve my CIBIL score without a credit card?

Credit cards are still an amenity that many customers are not familiar with. Most of the methods we mentioned above were for consumers with cards.

So, how can you improve your score without a credit card? Check out below:

Longer tenure

Opt for longer tenure when you can. Since longer tenure can reduce your EMI, it will help you to be regular with your payments. This small change will ensure you never miss your payments and, hence, no effects on your score. 

Managing your debts:

It is not advisable to take multiple loans in a fixed period. It is better to have one loan at a time. A good practice is to close the existing loan and then take the next one.

Why do experts say to avoid having multiple loans at a time?

It's because it shows that you are currently in high debt and that you might be running on insufficient funds. This creates a bad image.

You can choose a consolidated re-financing option to have your existing loan under a single loan. In effect, you only have one loan at a time. It will be easier to manage and keep a check on. If you want to learn more about refinancing, check out here.

Planning your “misses”:

When you have your back against the wall, you must decide. That decision can be about whether you are taking a new loan, missing a payment, maxing your card, and whatnot.

Since you already know it will affect your score, make an informed decision. There are tools to simulate the changes in score based on actions such as missing a payment, closing your credit card, etc. This simulator can help you make a weighted decision based on the situation and plan your future financials.

Debt Settlements:

People often have doubt whether settling the debt can affect the CIBIL score. The answer is yes, it does!!

Settling your debt means you are breaking your pre-determined repayment contract. When you close the debt by early settlement, it will stay in your report for years and can even reduce your score by 100.

But, if you already have an excellent score of 800+ and choose to settle, it may not cause such an issue. It depends on your situation whether to select the early exit. The extent to which the credit score is affected will depend on missed repayments and the outstanding balance to be paid.

Correcting mistakes:

Financial members such as banks and other NBFCs share information on their borrowers with the agency. The Bureau (CIBIL) creates your credit report and score using these reports. It is possible to have errors in the shared report reflected on the score.

Check your credit report to see if there is any mistake in loan-related activities or personal details. You can raise a dispute with the bureau and have it corrected. So, occasionally going through your CIBIL/ credit report is crucial.

How do I correct mistakes in the CIBIL score?

You might notice an error in your credit report saying you missed a payment when you didn’t! What do you do if the details in the CIBIL report are incorrect? As CIBIL cannot change these details independently, the changes happen through a process flow.

Step1: You fill out and submit the Online Dispute Form

Step 2: The concerned field will be "Under Dispute" to examine the dispute.

Step 3: The concerned lender checks the disputed matter.

Step 4: Lender accepts or rejects the dispute.

Step 5: If the lender verifies the mistake, the bureau makes the update. Otherwise, the bureau makes no changes.

This process can take 30 days or more, depending on the time taken by the Credit Institutions (CI)/ lenders.

Can Credit score improve in 6 months?

The actions mentioned here can have positive effects on your credit report. However, it is essential to understand that improving scores can take time and won’t happen overnight. It depends on one's profile and the actions taken. These actions may increase your score, but significant changes will take longer.

Improving your credit score takes time and discipline. Rather than trying to rescue a fallen score, it is better not to let it fall. You can avoid seeing your score drop by regularly paying and using your resources carefully. Following these strategies, you can gradually enhance your credit profile and secure better financial opportunities.

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