Tuesday, 7 June 2016

How To Stop Your CIBIL Score From Decreasing

One of the most important factors influencing the approval of a new loan is your CIBIL score – or credit rating. Credit Information Bureau (India) Limited (CIBIL) is the oldest and most trusted credit information report (CIR) company in India. When you apply for a new loan with a bank, the bank applies to CIBIL to check your CIR. This credit score tells the banks whether you are a good borrower or not. CIBIL scores are counted on a scale of 300 to 900, and anything above 750 is considered good.

If you are a conscientious borrower, it is not difficult to keep your score at 750 or above. So what do you need to ensure that the score doesn’t go down? Here are a few tips:

Keep Your Credit Card Bills Low

Credit card bills are an important consideration in CIBIL scores. Your motto should be to never spend more than you can afford. If the item you want to buy using your credit card is more than 50% of your monthly salary, then it may not be a great idea to buy it. Wait till you save enough to be able to afford it. Low but regular credit card utilisation instils a financial discipline in you, which is essential in ensuring a high credit score. Do not be tempted by the credit limit you have been given on the card. It is advisable to keep a maximum of 2 credit cards, because it is easy to lose track of what you shop with credit card. This will add unnecessary debt burden on you.

Pay Your Credit Card Bills On Time

While it is good to use your credit card regularly, if you are unable to repay the amounts on time, it will affect your credit rating. Always make payments before the due date. Also, do not pay just the minimum due amount every month – try to pay off at least 50% of the bill due every month in order to keep a clean credit rating.

Do Not Borrow More Than You Can Pay Back

Loans are another important credit score consideration. If you have multiple loans and are paying too many EMIs, alongside credit card bills, then it is likely that you may miss one or two payments or end up taking more loans to meet one or the other debt, and thus end up in a debt trap. So take care to keep your debt to the minimum. Borrow only when you need, and not for purchase of luxury items or things that you cannot afford. Compare your EMI (including credit card bills) to salary ratio, and if you are using 40% or more of your salary on EMIs, then it is time you reconsider your purchases and rein in your financial horses.

Check Your CIBIL Score Yourself

Instead of waiting for a bank to apply for your CIBIL score and reject your loan based on a bad rating, take the matter in your own hands. It is a good idea to check your CIBIL score periodically – maybe once in a year. By looking at your CIBIL score, you can figure out which loans are driving it towards the negative, and thus rectify your loan behaviour accordingly. You can also check whether any of the information provided by banks to CIBIL is incorrect. It is possible that the banks may have missed adding in an EMI or two, or not registered one of your credit card bill payments. Keeping an eye on your CIBIL score will help you improve your score by the time you need a big loan such as car loan or home loan, and ensure that the loan is not rejected just because of a low credit score.

The keyword in maintaining the CIBIL score is financial discipline. If you are able to sustain your financial health as well as your physical health, you can rest free of unnecessary monetary worries.