- HOW IT WORKS?
- Credit Score & Report
- Credit Bureaus
According to RBI guidelines, banks and other financial institutions are mandatorily authorized to check with CIBIL (Credit Information Bureau India Limited) before approval of any loan application or credit request. Lending to a borrower as an activity is judged upon two parameters:
- Payment Abilities (through analysis of financial data)
- Payment Patterns (through analysis of credit repayment history).
CIBIL in this regard offers assistance in understanding the above- mentioned parameters through CIR (Credit Information Report) which states the Credit Score of an applicant. CIBIL maintains tracking of an individual’s loans, credit cards, lending banks associated with, EMI dues, overdue, defaults in payments and much more to enable lending institutions to judge credit worthiness of an applicant.
Thus, the following factors are taken into consideration before approval of a loan:
- CIBIL score (Credit score)
- Gross Annual Income
- Current EMIs
Thus, if an applicant has a low CIBIL score or poor credit repayment history, they must first improve their CIBIL score before applying for a loan. It will escalate their chances of getting the loan. Generally, a CIBIL score of 750 is considered satisfactory for judging a borrower’s credit worthiness.
How to improve one’s CIBIL Score?
The first and foremost, holy grail rule in this regard should be to avoid any defaults with respect to loan EMI repayments and credit card monthly bill payments. Here are some promising ways that can help borrowers improve their credit score:
1. Keep existing loan balances on a check:
If the applicant has been defaulting or delaying EMI or Interest payment, the CIBIL score will show negative. Thus, before applying for a fresh loan, one must give their CIBIL score time to improve.
- Most important discipline one must build in this regard should be to pay loan EMIs within the time mentioned. There mustn’t be any delays or default towards EMIs.
- Too many unsecured loans reflect the applicant as ‘Credit Greedy’, thus applicants must reduce the number of unsecured loans they have. Personal loans and unsecured loans must be avoided as they negatively impact one’s CIBIL score.
- Avail loans that can be secured by assets such as car loan, home loan etc.
2. Keep credit card balance history on a check:
If the applicant undertakes too many credit transactions on their credit card it will, in turn, accumulate as an outstanding amount. Continuous accumulation of outstanding credit amounts impacts one’s credit score negatively.
- First, an applicant must concentrate on timely credit card bill payment and then on taking up more credit. As the loan amount shall reduce, the CIBIL score shall improve.
- Also, continuing only those credit cards where one’s repayment track record has been excellent should be exercised to build a favorable credit history.
- Undesired Credit Cards should be closed on time.
- Always pay credit bills without excluding late fee charges to avoid negative CIBIL tracking.
3. Practice Financial Planning:
Finances are imperative to maintain one’s lifestyle. Thus, financial planning must be regularly practiced by applicants as it shall go a long way in improving one’s CIBIL score.
- Maintain a budget for finances to understand the correlation of one’s income sources, saving opportunities, expenditure needs, and the debts in hand.
- Prioritization and allocation of financial resources should be practiced for timely repayments and desired lifestyle maintenance.
4. Seek alternative modes of borrowing
Since CIBIL score is basically a reflection of one’s financial discipline, one must not feel over-pressured that all doors of borrowing are shut for them.
- Peer to Peer Lending platforms can be an attractive alternative to applicants with average CIBIL score. They help low CIBIL score borrowers get loans at competitive interest rates.
- Applicants can also apply online to financial institutions that willingly lend to those with average CIBIL scores.
5. Taking help of spouse or family member or friend
Applicants with unfavorable CIBIL score can get on board with a loan application jointly with their spouse, friend or close family members in order to improve their chances of securing a loan.
6. Tax payments
Timely payments of taxes can be a plus for borrowers as it can influence lending banks or financial institutions to ignore a less than desired CIBIL score of an applicant.
7. Loan against collateral security
Urgent need of cash on basis of loan can become possible for applicants with low CIBIL score if they pledge Gold, shares, fixed deposits etc as collateral security.
One must remember CIBIL score is all about discipline that goes behind timely repayment of one’s dues needed to improve one’s credit worthiness for the purpose of acquiring fresh loans. A little handy tip in this regard can be to set reminders in your mobile about EMI due dates & credit bill payments or making it a point to leave one’s credit cards at home to make more use of cash in hand or the cash present in one’s bank accounts.
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