The CIBIL score is a three-digit number varying between 300 and 900 that reflects a borrower’s creditworthiness and repayment capacity. Having your credit score in the good CIBIL score range is crucial if you are planning to apply for a loan any time soon, especially a home loan. A home loan is a long-term commitment and therefore, one must try their best to avail of these loans on the lowest interest rate they can get and this is possible only with a good CIBIL score. A good CIBIL score for home loan is 750 and above. Such a CIBIL score ensures quick approval and gives borrowers high negotiating power, allowing them to negotiate for beneficial loan terms and conditions, such as a low-interest rate and a higher loan sanction. So, what should one do if their score does not fall into the good CIBIL score range? Should they give up on their dream of becoming a homeowner? The answer is no. CIBIL score isn’t absolute and one can easily enhance their CIBIL rating. Let us share with our readers 7 simple tips on how to increase your CIBIL score and have the ideal CIBIL score for home loans.
7 Easy Ways to Improve Credit Score
1. Maintain a Clean Repayment History
An applicant’s repayment history significantly impacts their credit rating. A clean repayment history, with no cases of late payments, almost guarantees a good CIBIL score rating. Therefore, to improve credit score, build a strong and clean repayment history. Set up auto-payments if you tend to forget due dates. If you miss paying an EMI by mistake, clear the EMI before the next due date. This will help you build and maintain a good CIBIL score.
2. Maintain a Healthy Mix of Both Secured and Unsecured Loans
Loans are of two types. Secured loans are backed by collateral or security. Unsecured loans, on the other hand, are sanctioned based entirely on the applicant’s credit profile. Having a mix of both secured and unsecured loans convinces lenders of a borrower’s ability to handle all kinds of debt. Therefore, borrowers who have a mix of both secured and unsecured loans have a higher CIBIL score than borrowers who are servicing only one of the two types of loans.
3. Maintain a Low Credit Utilization Ratio
The credit utilization ratio refers to the ratio of credit used to credit available. A high credit utilization ratio is indicative of high dependency on credit and therefore, a high credit utilization ratio directly translates into a low CIBIL score. If you want to improve credit score, use your credit card cautiously and never exhaust the limit on it.
4. Do Not Pay Only the Minimum Amount Due on Your Credit Card Each Month
A lot of people make the mistake of using their credit card each month and then paying only the minimum amount due. When they do so, the ratio of credit used to credit available increases. In other words, using your credit card when you are paying only the minimum amount due each month will cause your credit utilization ratio to go up and your CIBIL score to go down. So, to improve credit score and have a good CIBIL score for home loan, pay the entire amount due on your credit card each month. If you do not plan to do so, you should never use your credit card for big-ticket expenses.
5. Check Your Credit Report for Errors
Lenders maintain records on millions of credit users. This, sometimes, leads to confusion and lenders passing wrong information to credit information agencies about a user, which in turn, leads to a credit user’s CIBIL score going down. If your credit score is not up to the mark, check your credit report for errors. If you see any errors or mistakes, report them immediately. Rectifying errors takes time time, easily a month or so. Therefore, one must report all CIBIL-related errors immediately and it is also thus that borrowers are advised to check their CIBIL report at least once every few months.
6. Refrain from Applying for Too Many Loans Within a Short period
When loan applicants make way too many loan applications within a short period, credit information agencies see them as credit-hungry individuals. This, in turn, hurts their credit score. So, if you want to have a good CIBIL score for home loan, refrain from applying for too many loans within a short period. Apply for a loan only when you need it. Further, if you have to make more than two loan applications, spread out your loan applications over a few months.
7. If You Get Rejected for a Loan, Do Not Apply for Another One Immediately
If you apply for a loan and get rejected, do not apply for another loan. A loan rejection causes your credit score to go down, decreasing your chances of getting approved for a loan. If you have been rejected for a loan recently, it’s best that you wait and then apply for a loan after a few years.
When it comes to loan applications and one’s chances of availing of a loan, the importance of a good CIBIL score cannot be undermined. However, keep in mind that your CIBIL score won’t improve overnight. If you do not have a good CIBIL score, be prepared to be patient and practice financial discipline for at least a few months if you want to see any concrete results.