Knowing that your credit score directly impacts your financial future is important. The better it is, the easier it is to buy a house or even get loans. Some people even put their CIBIL scores as an early indicator of their prospects as they try to purchase apartments or vehicles.
However, many of us still think that credit score is just a matter of luck. But the truth is, credit scores are not simple. While some of you may have heard about good and bad credit scores, most do not understand the fundamentals behind it, like what is the CIBIL score and how you can improve it. Let’s find out more now!
What is considered a good credit score?
The CIBIL score is a number that reflects the creditworthiness of an individual. It is calculated by a company called Credit Information Bureau (CIB), which the Indian lenders own.
There are many factors that go into determining your credit score, and the amount of information you have about yourself is one of them. A good credit score is 585 or higher.
If you’re in debt with a high-interest rate, your score can be negatively impacted if you’re not making payments on time or in full. You may also have a low credit score if you don’t have any recent accounts opened or haven’t used them recently.
Your credit report will show whether or not you have an installment loan, such as a mortgage or car loan; how many accounts you have with different lenders and how much debt each account has; how much credit history you have; and how long it has been since you opened any accounts.
Why your credit score is important?
Credit scores are like a report card for the credit bureaus. They provide a snapshot of how you’re doing compared to other people with similar credit profiles and financial habits. The better your score, the easier it is for you to get loans, credit cards, and other forms of financing.
It is a three-digit number indicating your overall ability to repay a debt on time. The higher the score, the better it is for you. Your score will fall if you miss payments, don’t pay down debt, or don’t make other good financial choices.
If your score falls below a certain level, you may be denied a loan or charged higher interest rates.
Credit scores are essential because they help determine how much interest you’ll pay on loans, whether you qualify for auto insurance and what kind of interest rates you can expect when applying for a mortgage or other types of consumer debt. A high score means it’s easier to get good terms when borrowing money — and keep more of it once you do.
How can you improve CIBIL score?
1. Set Reminders to Repay on Time
When you don’t repay your existing debt on time, it can negatively affect your credit score by pushing it down. Therefore, it is important to maintain discipline while paying your loan and EMIs. To do this better, you can set reminders for your payments so it becomes easier for you to pay them on time.
2. Check for Errors in Your Credit Report
If you want to improve your CIBIL score, you should keep a check for errors in your credit report. Most of these errors are easy to correct, but if you fail to do so, it can cause serious problems for your credit history.
A number of different types of errors are reported, including missing payments and accounts that are not updated regularly. You should pay close attention to these as they could prevent you from getting approved for a loan or other financial services.
If there’s an error in your report, you must take action immediately. Call the credit bureau and let them know about the issue so they can fix it immediately. This will make sure that there’s no more damage done to your credit report while they wait for another update from their system.
3. Try Maintaining a Healthy Credit Mix
Credit Mix is the range of credit products and services you have on your record. The higher the number of types of credit you have, the better your score will be.
A healthy Credit Mix shows that you understand the different types of credit that are available to you and how these can help improve your financial situation. It also means you know how to manage every kind of loan or credit product.
4. Say No to Being a Joint Account Holder
The CIBIL score is the most important factor for banks to consider when deciding whether to give you a loan. A high CIBIL score means that you are a responsible borrower and that your financial situation is stable.
To improve your CIBIL score quickly, say no to being a joint account holder. Being a joint account holder means that both partners share the responsibility of repaying the loan together. This means that one person’s credit history will be used as the other person’s score. This can affect your credit score as well as increase the total amount of debt that you have on your account.
5. Choose a Longer Tenure When You Take a Loan
When you are trying to get a loan, make sure you choose a longer tenure for your payment. This will ensure that your EMI is low so you can pay it back on time without any issues.
6. Create Credit History by Choosing Forms of Credit
You can raise your credit score by creating a good credit history. Here are some things you can do to help get there:
Pay off any outstanding debts. If you have any unpaid bills, make an effort to pay them off as soon as possible. This will improve your score because it shows that you can pay back what you owe.
Avoid opening new accounts in a short amount of time. Opening several new accounts within a short period of time can lower your scores because banks will see this as a sign of financial stress and may close your account if they feel that their money is at risk.
Max out your available credit limits on existing accounts so that your total available credit is as high as possible while still keeping an active balance on each account. This will help raise your scores because it shows that you can use credit responsibly and manage debt obligations effectively.
A good credit score is one of the most important assets that you can have. It can save you loads on interest charges for loans and mortgages. Having a low CIBIL score will mean higher borrowing costs and paying more for similarly priced services. Utilize all the above points in order to keep your credit score healthy, so when the time comes, you can invest wisely.