Help and Advice

8 Smart Ways To Repair Your CIBIL Score

 Improve Your CIBIL Score With These 8 Strategies

repaircibilscoreThere’s only one thing worse than a bad CIBIL score—doing nothing about it.

Fixing a bad credit report may prove to be easier than you think if your report is dismal more because of poor judgment than a huge amount of outstanding loan. Even then, however, there are steps you can take to improve your present performance. Take a look at 8 top tips to mend a bad CIBIL credit report (These tips work irrespective of the cause of your bad report.):

Tip #1: Make Payments on Time, Every Time

Nothing pulls your credit score down more strongly than a bad loan payment history. Paying just the minimum amount on a loan now and the balance later is tempting indeed; however, like all bad temptations, giving into it will hurt you badly and for a long time.

Why do people make late payments so often in the first place?

Lack of funds is the reason sometimes, but more often than not the reason is lack of knowledge about the consequences. The following information lists separately what you gain and lose when you pay late and will help you make informed decisions in future.

What you gain?

You escape paying the late payment fees. (This is the only benefit.)

What you lose?

The interest amount increases, so you end up paying more. More than that, your credit score is negatively affected, which in turn may make it difficult for you to get a loan with favorable terms or even any loan in future.

When you are late on a payment, your lender updates CIBIL about it, and the late payment is reflected on your credit report.

The Verdict

You don’t have to be a financial wizard to see the obvious—you lose a lot more than you gain by being late on your payments.

A Practical Tip…

If you pay your bills through a cheque and submit it only one or two day before the due date, stop doing so, it won’t repair your CIBIL score. Payments made through a cheque take some time to process and register. (Someone will collect the cheque and send it to the right place and then someone will process it and make an entry—all of which will take some time at least). Paying through check at the last moment may result, and usually does result, in late payment.

Why not drop the cheque a few days before the last date? Also it is a great idea to automate your fixed monthly payments, like your house loan or car loan EMI. Where the monthly payment is not fixed, set a recurring reminder on your smart phone a few days before the due date.

Tip #2: Reduce Number of Credit Cards and Loans

When it comes to number of credit cards and loans, having more is not good.

The more number of credit cards and loans you have above the ‘natural’ limit, the less favorable you become as a borrower. Having many credit cards and loans is interpreted by lenders as a strong dependence on credit—something they don’t want to see in their potential clients.

A Practical Tip…

Let’s say you have 7-9 credit cards. Why not increase the credit limit on 2 or 3 and close the rest? Your total credit limit will remain the same or close to it, but the number of cards will reduce.

Tip#3: Reduce the Percentage of Unsecured credit

Credit extended without collateral security is known as unsecured credit. The two most common examples of unsecured credit are credit card debt and personal loan debt.

The higher the percentage of unsecured credit in your total credit, the poorer your credit score, considering other things are constant. Why? Because you come across as someone who has more emergencies in life than a normal person and is dependent a lot on credit.

A Practical Tip…

Reduce the percentage of unsecured credit by increasing the amount of secured loan or by prepaying a part of your unsecured debt. Let’s see by help of an example how both fixes work.

Let’s say the total loan on you is ₹2,00,000. Out of this ₹1,50,000 is unsecured (that is, 75% of your total loan amount is unsecured loan). If you take ₹1,00,000 of additional secured loan, your unsecured loan percentage will reduce to 50%, which, although still high, is not as bad as before.

Continuing with the above example, if you prepay ₹50,000 unsecured loan, again your unsecured loan percentage will fall to 50%.

Tip#4: Don’t Utilize the Full Credit Limit

Lenders don’t like late payments, nor do they appreciate full credit limit usage even when there is no delay in payments.

Let’s say you have a credit limit of ₹1,00,000. Each month you use ₹80,000 or ₹90,000 though you always make payments on time. Usage of 80% or 90% however will still reflect poorly on your credit score, despite the timely payments. This is because to lenders you come across as someone who cannot live without credit. While 80% or 90% of credit limit usage reflects negatively, a 30% or 40% usage is seen positively.

Continuing with the above example, let’s say you have 2 credit cards and the limit on each is the same: ₹1,00,000. You use 80% of your first credit card almost every month and 0% of another. As a result, you have a negative remark on your first credit card and a positive remark on the other. Instead of heavily using one and not using another, if you spread the usage equally, that is, 40% on each, you can maintain a positive report on both.

A Practical Tip…

In case you are utilizing your credit limit and cannot possibly reduce your expenses, try getting your credit limit increased. This will reduce your credit utilization ratio. Also till you get your finances back on the track, it will be better that you don’t close any extra credit cards (a tip discussed above and useful in improving credit score, but not when you are using other cards to their maximum credit limit); otherwise, your credit utilization ratio will be high.

Tip#5: Build your payment history

This way to repair your CIBIL score takes time. If you’ve a positive payment history, but it’s only a few months old, you won’t get much benefit out of it. On the other hand, a positive payment history for the last 5-6 years is a huge plus. Remember the longer the positive payment history, the better the credit report.

A Practical Tip…

Don’t have a credit card yet? Then you should get one and start building your payment history. Use your credit card to 30% – 40% of its credit limit and make payments on time.

Tip#6: Think Twice before Becoming a Guarantor

Become a guarantor of someone only if you trust the person with your life—to all others, say ‘no’.

When a person defaults on a loan, his score gets affected severely, but the guarantor’s score also takes a hit.

A Practical Tip…

Some find it difficult to say a ‘no’ to their friends and acquaintances. While that is all good (or maybe not, depending on how you view it), that’s no reason to become a guarantor of someone.

A request for becoming a guarantor is not the same as a request for a cup of coffee: you may end up paying through your teeth for someone else’s folly!

Also keep your personal documents safe. Forging someone else’s signature to make him a guarantor without his knowledge is not something common, but it is also something that has never happened before.

Tip#7: Don’t Run Away or Settle a Loan

You  will dig a bigger hole for yourself if you first take a huge loan and then run away or settle it.

When you run away, the loan is marked as “write-off”, while a settled loan (a loan paid only in part) is marked as “settled”. In both cases, you are blacklisted for no less than 7 years. No lender will give you any credit, try as hard you may.

A Practical Tip…

Reeling under too much credit is a bad situation. Avoid it by all means, but if you’ve fallen into it, do whatever you must to repay it.

Tip#8: Don’t make too many inquiries one after another

Lenders don’t like individuals who have made one inquiry too many in a short time. Let’s imagine in last 2 months you’ve made 3 inquiries: a credit card, home loan, and a personal loan. How do you think this affect your image?

A lender will think all or some of these things about you:

  • You are living on credit
  • You are, for whatever reasons, trying to grab as much credit as you possibly can
  • Your capacity to pay back may be low

You not only shouldn’t make too many different inquiries in a short time but also shouldn’t submit an application for a same type of loan with many banks at the same time. Each inquiry is reflected on your credit report, so if you submit a home loan inquiry with 5 banks, your credit report will show 5 inquires, and your credit score will take a hit.

A Practical Tip…

Maintain a healthy gap, at least a 6-month gap, between two loan requests. When applying for a loan, by all means, check out the rates of several banks, but don’t submit a loan request to each one.


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