Jagoinvestor

April 2, 2012

8 tips to Improve CIBIL Score !

Is your CIBIL report and Score messed up ? Then the biggest question you must be having is “How to Improve CIBIL Score ?”. “Bad credit score” is really a scary phrase these days. Many people are stuck with a bad credit score/report due to their own or credit card company mistakes, but most of the times I see that it happens due to poor credit behaviour and mis-management of credit officers. Everyone wants to improve cibil score, so that they do not face any issue in getting loans at some point in future. Now in this article, I will highlight few tips/points which will help you understand what makes a great credit report and good credit score. To understand this, just be clear that your credit score is dependent on several things and taking care of each point is very important. Read in detail about CIBIL Score here

1. Late payment / missed payments

The biggest reason for a bad credit score is bad loan repayment history. A lot of people pay their bills late or miss the payment completely. It’s so tempting to pay the minimum balance now and pay the balancing due later. Doing this just saves you from late payment fees, that’s all. The interest is charged and more than that you should be worried because this information is updated by your bank to CIBIL and the next thing is obvious, your credit report and score gets uglier each month because of this. So every time you miss your home loan EMI, car loan EMI, credit card payment or you make a late payment, it affects your score badly. If you have done a lot of late payments or missed payments earlier, its your time to fix it by being more disciplined from now on. Dont worry, if you now promise to pay things on time and do it regularly for next 1-2 yrs, it will surely improve cibil score for you.

Common sense Tip: Don’t pay your bills through cheque just 1 day before the last due date, because it does not mean that your payment is done. Some one will collect it, send it somewhere, then some one will make an entry for it etc, etc… This can take some time and result in delayed payment. Why not drop it 5 days earlier instead of 1 day? Please automate the payments for EMI’s and your bills. If the bills are not fixed each month, at least put a recurring reminder in your phone 5 days before the last date and then make the payment. If I can do this, why can’t you? In last 4 yrs, I have made my FULL credit card payment 48 times exactly 4-10 days earlier than the last date of payment. My CIBIL score is 831. You can also check your CIBIL score online

2. Large Number of credit cards and loans

There was a time when having 6-8 credit cards was a commonly practiced trend and something to show off, now you will pay for it! A lot of credit cards and loans above a “natural” limit is a big negative thing. That shows credit hunger and an extreme dependence on credit in your life. It shows that your life is too much dependent on external credit. Lets say you have two friends Ajay and Robert. Ajay asks for some credit from 2 people in whole year and then asks you for another Rs X and you have good friendship with him, I am sure you will think once and then may be give the money to him. But on the other hand imagine Robert who has taken a credit from 8 people in your office and 2 other people outside office, then when he comes to you and asks for even Rs X/2 amount, you will think 5-10 times before giving it to him. What kind of feelings you will be having in mind? What all doubts will be there in your mind? Some thing same happens in the loan industry, if you have more than “required” or acceptable limit of credits, it badly affects your score. Your score reduces point by point each month.

Common sense tip: If you have a lot of credit cards, better increase the limit of 2-3 of them and close the other credit cards. This way you will have same Credit limit in total and have reduced number of cards. Its better to have 2 cards with 25,000 limit each, than 5 credit cards with 10,000 limit each.

3. Utilizing your full Credit Limit each month

One of the easiest way to improve cibil score is to effectively use your credit card and do not utilize it fully to the limit. If your credit card limit is Rs 50,000 a month and every month you use 40,000 or 45,000, it will affect your score in bad way. Even if you are paying your dues on time, still what it shows is that you are utilizing your limit to fullest, companies don’t know that you might be doing it deliberately to “manage” your credit effectively, but the way it is seen is that your life is dependent on credit. So stop reaching 80% or 90% of your credit limit. A 30%-40% credit utilization is well accepted and seen as “positive” and make sure its the case with all the credit cards you have.

If you have 2 credit cards with limit of Rs 10,000 in first card and Rs 10,000 in second card and you spend Rs 9,000 from first credit card, but Rs 0 from second credit card, then your 1 st credit card utilization is 90% & 0% in second. Which means that you are seen negatively on your first credit card and “positively” on second card, but what you can do is spend 5,000 from first card and Rs 4,000 from second card, so that your credit utilization is 50% and 40% on both the cards and its “positive” on both.

Common sense tip: If you are reaching your limit, either make sure you move to cash/debit card for a part of your expenses and reduce your credit card limit, but in case you can not reduce your expenses on credit card, better call your credit card customer care or write to them that you want your limit to be increased. Most of the companies will do it. Just tell that you have few things lined up in next 2-3 months and you want the limit to be increased.

On the other hand think well before closing a credit card that you are not using. Your over all credit limit will come down if you close a credit card. So make sure you think twice before closing a credit card from credit utilization ratio point of view.

4. Higher percentage of Unsecured credit

A high number/amount of unsecured credit is bad. Unsecured credit here means credit card debt and personal loan debt, which are totally unsecured and you can run away with it. If you have total 1,00,000 worth of debt and out of that 80,000 is because of credit card and personal loan, then 80% of your debt is Unsecured. This is bad. If you had 80% of Secured debt like education/home/auto loan, then it was a different thing. I believe this is very obvious, the more unsecured debt you have, the bad it looks like. It shows that your life has more “emergencies” than a normal person, which makes you hungry for immediate credit. So this makes sure your credit score takes a hit. Remember that having a good mix of credit types is a good idea. So if you have home loan, education loan and credit card, that’s 3 types of loans, which is good. But if you have 5 personal loans and that’s all, it shows too much dependence on one kind of loan.

Common sense tip: Make sure your total unsecured debt, looks small in front of your total debt. You if have 80,000 of unsecured debt out of total debt of 1,00,000, then your unsecured debt ratio is 80%. If you take 5 lacs of secured loan, then your unsecured debt comes down in percentage, that makes things look better. Or make sure you prepay a part of your unsecured debt and bring down the percentage, Its one of the ways to improve cibil score !

5. Being a guarantor without giving a thought

If I take a home loan and ask you to be a guarantor for my home loan because I have helped you with so many things in personal finance, because I have answered so many of your comments and helped in solving your queries, what would you say? Don’t think more on this, you better say “Go to hell”. Because if I default on that home loan, you are held liable and your score will go down. While my score will be affected more, yours will also take a good hit! A lot of people because of various reasons become guarantor for other’s loan and then the primary person runs away or is unable to pay off the loan. Don’t do it, unless you are really sure you want to do it. I can do it for my brother, but not for you.

Common sense tip: Don’t leave your documents here and there, if you don’t agree to become a guarantor, many people try to make you guarantor by forging documents and misusing xerox PAN card or driving licence. Signature is easy to copy these days! Also when your friend who has spent good time with you in last 3 months, asks you to become a guarantor, tell him you were thinking of asking him to be guarantor for your home loan, good way to test the friendship!

6. Duration of your credit history – more is better

Longer the history, better it is. You will trust a 5 yrs old friend more than 3 months old one. That’s true in case of credit history too. If you are paying your payments/EMI’s for all loans on time from last 5 yrs, it’s very much a proof that you pay on time, you have a good history, but if I have a good history from last 5 months, that is not that strong. So higher the duration of good payment history, the better your score will be and will help you to increase cibil score.

Common sense tip: If you do not have a credit card, there is a good reason why you should get one now and do your payments with credit card and pay in full every month, so that your payment history is built.

7. Too many inquiries in short spam of time

Making too many inquiries in a very short time is not looked at positively. Imagine you have made a credit card inquiry, a personal loan inquiry, a car loan inquiry in last 3 months itself. What does it show? It shows credit hunger, it shows that you want to snatch any credit which you can get, you want to get things in life on credit. Hence have a respectable amount of gap between each inquiry you do. Dont apply for home loan with 6 banks. Note that each and every inquiry you do is reported in your credit report and if your report is full of inquiries, your score will stink! Any lender will doubt your payment capacity when you are so much dependent on credit. So the best way to improve cibil score is to keep your enquiries minimum.

Common sense tip: A lot of people just apply for loans even if they really don’t need it, keep this thing in mind and deliberately make sure that there is few months of gap between 2 loan applications (at least 6 months gap would really be good).

8. Settlement of your Loan Or running away

This is the worst mistakes of all. There are people who first take on a lot many loans and then are unable to pay it. So they either ran away (companies mark it as “write-off”) or at best just made some payment and settled the loan (companies mark it as “settled”). And this will make sure you are blacklisted for at least 7 yrs. You will not be given any loan, you can cry your eyes out for that 1 small credit card and you will be treated like you are nothing.

Common sense tip: Cut your debt, when it shows a sign of going out of control. One common ground rule which can be followed it that the overall outstanding credit at any point of time should not be more than 1 month of your take home salary. There is no solution of an out of control credit card debt other than paying it in FULL. Live a life with credit card as if you don’t have one!

Each tip on How to Improve CIBIL Score has its own weightage

Note that different factors which affect your credit score has its own weightage, so one factor can be more stronger than the other, but make sure you follow all the best practices and do not make any wrong decision. Look at your actions from the lender point of you. See what kind of people you would like to give credit if you were the loan provider. Just act like what you had expected

Did you understand how you can improve cibil score ? Can you share some top to increase your credit score , incase its not covered in this article !

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Bhaskar
Bhaskar
2 years ago

Manish sir, I need your suggestion very badly on improving my CIBIL score.

I have had one loan account with the status ‘Written off’ for almost 3 years sir. I have another personal loan of Rs.2,00,000 and a Gold loan of Rs. 1,50,000 and a Credit card against FD of Rs. 45,000. All payments are going good and no delays. Right now I have a sufficient amount to PAY the EMIS of my personal loan and gold loan but I don’t have Rs.2,00,000 to repay the written-off loan.

I can arrange the above amount within 3 months and I will clear the written-off loan.

Here my tricky query is, Even though I make all EMIs on time for 3 months, does my CIBIL score increase or decrease while having a Written off loan?

Today my CIBIL score is 686. Please suggest to me whether to clear the Written off amount first or continue with the rest of the repayments on time for 3 months to accumulate Rs. 2,00,000 to repay the written-off loan in 3rd month.

Please reply sir. Thank you

Ajay Singh
Ajay Singh
3 years ago

Nice piece of information and I completely agree that late payments actually hurt the credit score badly. So, I always pay off all my EMIs and credit card bill on time to maintain a good credit score.

jyotishtha
jyotishtha
7 years ago

hi manish …i gave two cheques to a person of my salary account …for personal use…bt one of the check was bounced due to less payment in the account ….i have no any loan or credit card …is that check bounce will effect on cibiel

vignesh
vignesh
7 years ago

Hi Manish sir,

i contacted u previously also, thanks for ur previous suggestion.
now my CIBIL score is now 775. I have a two wheeler loan ( total: 52000, for 36 installments, have cleared 9 installments now- no defaults in two wheeler loan ). since Jan-2016 have no defaults in any payments except for the months apr-2016 ( 009) and may-16(016)- default happened in my CITI credit card payments. i dont have any educational loan/ personal loan/housing loan . I have cleared all my credit card dues 7 months back itself. Can i go for personal loan with HDFC now or shall i wait till december-2016. please suggest

BalaV
BalaV
7 years ago

Hi Manish,

I hold an Housing loan, it had a cheque bounce due to some reasons between my bank and housing loan bank, though I had enough balance. And I also did some 3 times 2days delayed payment of Housing loan emi, and am 24 years Old., holds an unused Credit card for couple of months. Will these details affect much on my CIBIL ? Pls advise.Since I had applied for 3 banks personal loans and all got rejected.!!

Thanks!

vivek
vivek
7 years ago

hi ,

i’m vivek. i have my cibil score 580 and i have only one bank loan. My loan tenure is upto feb 2018. if i pay my loan in next two months(by this december 2016). will my cibil score improves ? if improve how much it would be , if not improves then why ?

Kindly please suggest me the solution ?

suraj dsouza
suraj dsouza
7 years ago

Hi Manish,
I have a small inquiry. I have an existing HDFC card with 50k limit and within 3 months of issues I’ve used up nearly 25k on the card but I’ve paid all my dues on time. I tried applying for CC in Citibank but it got rejected and they sent me an extract of my CIBIL score where it said High credit utilization. Could you please tell me how long would this reflect in my CIBIL and is there anything I can do to improve this area. Rest of the CIBIL report is fine.

Vishal
Vishal
7 years ago

Hello Manish,

1. I need to know how long is the bad credit reported to CIBIL incase u default on a credit card and it shows suit filed and written off on the report.
2. My Credit is 520 at the moment. Will any bank provide a loan with higher interest rate and which.
3. I have also been suggested to make all my transactions through cheques to increase score. Will that help?

Syed
Syed
7 years ago

Hi Manish,

I have 2 Personal Loans running for an amount of 4.5 Lacs, I have 3 credit cards and unfortunately they are utilized completely. I have a Cibil Score of 746. What do you thing are chances of me getting a Personal Loan as topup. I earn 48 K per month.

Thanks

Krishna
Krishna
7 years ago

Hi Manish,

I have some huge amount o/s on my credit card (above 60,000) from past 6 months, and my card is blocked and under lean period. If i pay the total amount at one shot, will my cibil score will be good ? Suggestions required.

Jagoinvestor Admin
Jagoinvestor Admin
Admin
Reply to  Krishna
7 years ago

Hi Krishna

Yes , the CIBIL score will improve . But in case you are expecting it to return to same level as before the answer is – No. As every time we default it has an adverse impact on CIBIL.

Pradeep
Pradeep
7 years ago

HI Manish, my credit score 550, I took personal and paid it completely however as per the bank there is an OD of 6000/- and it’s been updated in my CIBIL as written off, if I pay this amount to them, will it help me increase my credit score and in how much time.Please reply me on my email id [email protected]

vigneshwaran
vigneshwaran
7 years ago

in addition my fixed salary is 36000, living in rented house with family. can i avail personal loan or shall i wait for three more months

Vijay
Vijay
Reply to  Jagoinvestor
7 years ago

Hi manish,

I had a credit card of HDFC, n I didn’t paid it finally after lot of reminder and they cancelled my credit card, now I am not able to get any credit card even after applying so many times.

What to do to get the same.

Vigneshwaran
Vigneshwaran
7 years ago

Hi Manish sir,

i contacted u previously also, thanks for ur previous suggestion.
now my CIBIL score is now 775. I have a two wheeler loan ( total: 52000, for 36 installments, have cleared 7 installments now- no defaults in two wheeler loan ). since Jan-2016 have no defaults in any payments except for the months apr-2016 ( 009) and may-16(016)- default happened in my CITI credit card payments. i dont have any educational loan/ personal loan/housing loan . I have cleared all my credit card dues 4 months back itself. Can i go for personal loan with HDFC now or shall i wait till december-2016. please suggest

Vijay
Vijay
7 years ago

Hi Manish, have applied for SBI credit card in 2007 and before have received the card, i got the bill for premium to be paid for insurance which have not taken, have paid the amount as they mentioned that they will send the insurance documents, bot not sent, i was paying the amount for which i have used the card but not the insurance amount which have not opted, for last 6 years am not using the credit card and it got closed by bank, now in CIBIL report, i could see comment as “Written-off”, now am planing to take personal loan and credit cards, please suggest, Thanks

kastubh
kastubh
7 years ago

Hi, my score is 664. i have taken many loans and all have been closed except one is continue with on time payment.
but there is one error showing only RS.31( thirty one) OD from my personal saving account.i havent taken any OD service .So regarding the same i have raise the dispute, i got the reply from cibil that plz contact bank. i went to bank they say the system is showing all clear, we cant find any problem in account. Now in this situation what you suggest as i have to improve my cibil score. Plz guide.

Deepak
Deepak
7 years ago

Dear Manish Sir,
I had two credit cards and one personal loan . I want to know if I have taken personal loan March 2016 and I want to pay all due amount and closed this loan. This is good or bad for my cibil score or its increase my score.

Regards
Deepak Singh

Sumit
Sumit
7 years ago

Hi There,

I would like to know something about CIBIL score.

Over the past six months, between 2 CIBIL reports, my CIBIL score dropped from 810 to 793, although within that period, all my credit card payments were made within due date, no new credit card/Loan etc was taken.

There was a big credit card bill of around Rs 2.5 lakh but was paid on time (even the credit limit on the card was higher than that amount). Can this transaction potentially cause decrease in CIBIL score.

What can be potentially other reasons in your view. I am concerned if I don’t find out the reason, it may lead to further decrease in CIBIL score.

Please advise

sravamsetti
sravamsetti
7 years ago

Hi Manish,

I have CIBIL score 831 but have almost 7 check bounces in the current existing personal loan 2 years back.after that payment history is good. Due to this if i apply for any loan it is getting rejected. I am facing so much problem with this.

Could you suggest me how to overcome this to avail some new loan. Or If i close the existing loan will the problem be resolved?
Coudl you please help me on this.

Vicky
Vicky
7 years ago

Hi Manish,

I have a loan over credit card for 24 months and I am paying the EMI’s on time. Will CIBIL score get affected if one taken a loan over credit card. I mean it is good or bad to take a loan over credit card. Please suggest on it.

Thanks in advance!!

PONVIGNESHWARAN
PONVIGNESHWARAN
7 years ago

Manish sir,

My cibil score was 695 in march, ( mainly due to credit card issues). I have cleared all my dues two months back IN-TIME, )i have been paying in time). I have a two wheeler loan of 36 installments,( availed by march – since then i have been clearing it perfectly before due date). Will there be increase in my cibil score? i have to avail personal loan, kindly suggest.