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.

Three steps for credit newbies to get the ball rolling

If you’ve never taken credit before, your credit score with the country’s leading credit information bureau – CIBIL – will read NH, meaning “No History”. Banks and lenders tend to avoid “NH” applications because of their potential for default and the direct losses the bank will experience as a result. The only way to get credit is to have a good credit history or score – and the only way to get a good credit history or score is by taking credit. It’s kind of a catch 22 situation, but doing these 3 simple things can get you started on the road to financial freedom by slowly helping you build a positive credit record:

1. Use credit cards carefully: For someone with no credit history, getting a secured credit card is easy and highly useful. But the mistake most new borrowers make is to use their credit cards irresponsibly, by delaying payments and making impulse purchases.

Judicious and careful use of your credit card can take you a long way in building and maintaining a good credit rating and will make you eligible for loans and greater avenues of credit in the future. Whenever you make a purchase, ensure that you will have the funds to pay it off before the due date. If you miss making the payment by even just one day, there will be fines, charges and penalties levied which will damage not only your credit rating, but your financial health as well.

Secured credit cards can be acquired by applying for one against the security of a fixed deposit with the same bank. There will be a minimum deposit amount that will need to be maintained. Using this card regularly for small to medium purchases and paying off the entire amount well before the due date will contribute greatly to your credit score.

2. Stand as a guarantor or co-applicant for loans: Standing as guarantor means that you are just as responsible for the debt as the applicant. Details of the loan, its repayment and all other specifics are reported to the credit information bureaus for both people, and will reflect in both credit reports. Ensure that the person whose loan you’re guaranteeing is a person you can trust, and one who is responsible with money, as a default on the primary applicant’s part can leave you in the lurch and destroy your creditworthiness.
   

A successful loan repayment will guarantee positive credit ratings for the applicant and guarantor alike, and can be an argument used in your favour if your loan application is ever denied on the grounds of a less-than-favourable credit rating.

3. Monitor credit reports: Many people who do everything right and think their credit report is positive are usually in for a nasty shock when they receive their actual credit rating. There have been a number of cases reported wherein the credit information bureaus receive faulty information that reflects negatively in credit reports – this can happen due to a number of reasons including negligence on the part of credit information partners. To make sure that all the details mentioned in your CIBIL report and absolutely true, request a copy of your credit report once every 6 months and immediately correct any errors that you find. If you plan on borrowing heavily in the future, a clean credit report is absolutely vital.

There are many more ways you can build your credit report up to be a reflection of your outstanding ability to manage debt – but you need to be diligent and meticulous in your financial planning. It isn’t hard to do, and the reward is all the credit you need. Lenders will, of course, expect you to behave with the new credit with the same care and control as you did with older, smaller loans.

Managing finances is important, and managing your CIBIL credit score and making sure it always shows you in a good light can be considered a vital offshoot of judicious financial planning. Many employers these days are looking at a stable and well-maintained credit report as an indicator of stability and trustworthiness while reviewing job applications.

If your credit history is non-existent, don’t let it worry you – as you are perfectly poised to write an excellent credit history for yourself on a clean slate.