A poor credit score can have a major impact on your financial well-being, especially if it has been low for an extended period.
In India, Cibil is the primary agency that maintains credit scores, which are crucial for securing loans, credit cards and even renting a property. The Cibil score is a key indicator of your ability to manage money and how you handle various credit instruments.
Lenders usually consider a score of 750 or above to be good. If you're looking to improve your score before applying for a loan or credit card, there are simple steps you can take. You need to avoid certain financial habits to improve your overall credit profile.
Avoid Missing Payments
One of the most damaging habits that can prolong a poor credit score is missing payments on loans or credit cards. Cibil, along with other credit bureaus, factors in your payment history when calculating your credit score.
Missing payments regularly signals to lenders that you are a risky borrower. If your score has been low for a long time, it is important to maintain a healthy track record of making payments as per the due dates.
High Credit Utilisation
Credit utilisation refers to the ratio of your credit card balance to your credit limit. Using too much of your available credit can hurt your credit score, especially if you're carrying a high balance on multiple cards.
Ideally, your credit utilisation should not exceed 30% of your total credit limit. If your score is already low, avoid overusing your credit cards and aim to reduce outstanding balances over time.
Avoid Multiple Credit Applications In Short Span
If your Cibil score is poor, applying for multiple credit cards or loans within a short period is a risky move. Each application results in a hard inquiry, which can further reduce your credit score.
Lenders view frequent credit applications as a sign of financial instability. Instead, focus on improving your score by maintaining good payment habits.
Keeping Unused Credit Accounts Open
While it may seem like a good idea to leave old, unused credit accounts open to increase your credit limit, this can actually harm your score in certain situations.
If your credit accounts carry no balance, they might not be adding value to your credit profile. More importantly, keeping accounts with a poor payment history open can continue to hurt your score.
It's important to review your credit report regularly and consider closing accounts that don't benefit your credit score.
Ignoring Credit Report
Many people with a poor Cibil score ignore their credit report, which can prevent them from identifying errors or fraudulent activities. You need to check your credit report regularly to ensure that the information is accurate.
If you spot any discrepancies, inform Cibil immediately. Sometimes, an error could be the reason behind a poor score and rectifying it can lead to an improvement.
To conclude, improving your credit score is not a difficult task. With a little financial discipline and a few simple steps, you can maintain a healthy credit score over time. It's important to follow a disciplined approach in managing your money and credit instruments to improve your credit score.
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