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How to Improve Your CIBIL Score

The Reserve Bank of India has mandated that banks should check CIBIL score of every loan or credit card applicant. CIBIL is an organization which keeps track of your past loan/credit card repayment data and scores you from 300 to 900. The closer your score is to 900, the higher is the chances of approval of your loan application.

If you have a bad CIBIL score, here are a few suggestions that will improve your CIBIL score.

Borrow Only What You Can Pay

For most of us, the CIBIL score goes down when we either delay the EMIs or aren’t able to pay off the loan. Hence, the thumb rule to improve CIBIL Score is to borrow only what you can repay. Taking a loan is now easier than ever. While you can get a loan within a minute, you should never borrow more than you need. The higher the borrowed amount, the higher will be the EMI and higher chances of missing the payments.

Also, choose tenure carefully when taking a loan so that your EMI doesn’t exceed 20% of your net monthly income.

Timely Payments

Banks offer lucrative offers and discounts for credit card holders for buying items that they might not ever need. We as consumers fall into this trap of impulsive buying tendencies and spend beyond the ability to pay on time. Such habits not only directly affects the CIBIL score but also attracts hefty penalties from the banks. These penalties again add up to the principal amount and make it even more difficult to make the payments.

Forgetting payment schedules is easy when you’re busy in your life. Set a reminder on your smartphone or Google Calander that reminds of your payment schedule on time. 

Pay Dues in Full

Most fall prey to the teaser of minimum due that credit card companies offer while generating the credit card bills. Minimum due is approx — 5 % of your total outstanding balance in that particular billing cycle. While you can pay this minimum due and avoid late payment charges, your credit card company adds interest and tax to your next bill. Remember, your credit score goes down when you pay only the minimum due. So, always pay your credit card bill in full to avoid and extra charges and improve your CIBIL score.

Keep a Check On Credit Utilization

Never use more than 30% to 40% of your credit amount. You might have a credit card with Rs. 1,00,000 limit, but you should always keep your spends under Rs. 30,000 to 40,000 in a single billing cycle. A higher limit utilization makes CIBIL perceive you as credit hungry and thus brings down your score. 

Use Credit Card carefully

Credit cards are powerful financial tools. It can be a saviour for them who understand it and can break finances for them who don’t. A lot of people tend to misuse credit cards without knowing the consequences. They forget that you’ll ultimately have to pay for your purchases as you’ve borrowed money from someone, in this case, the bank. These unnecessary purchases can lead to a huge credit card debt and lower your CIBIL score. 

Never Use Credit Cards at ATM

It’s never recommended to use credit cards to withdraw cash at ATMs. Unlike retail purchases where there are 45-50 days of interest-free credit period, cash withdrawal using credit cards from ATMs attract interest from the very moment you get the money from the ATM. Once you do so, the bills rise, and CIBIL score goes down in a flash.

You can explore alternatives like withdrawing from FDs, Mutual Funds, RDs or any other financial instruments rather than using credit cards at ATMs.

Avoid Making Too Many Credit Enquiries

Making too frequent CIBIL enquiries in a short period can pull your score down. Do not check your CIBIL score so often and avoid for applying for loans where rejection chances are high. Ensure first to check the eligibility criteria to avoid rejection of your loan applications. 

Never Throw Your Old Cards

Maintaining credit cards for a longer period helps you build a strong and lengthy credit history, which in turn helps in improving CIBIL score. Never throw your old credit cards, instead keep them and use them a couple of times in a year. 

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