How to Improve Low CIBIL Score?
Last Updated : Jan. 7, 2025, 5:55 p.m.
CIBIL score is a numerical score between 300 to 900 given by the credit bureau TransUnion CIBIL. It is a summary of your CIBIL history and reflects an individual’s creditworthiness. Lenders look into your CIBIL score before approving your loan or credit card application. By looking into your CIBIL history, lenders will determine whether you can pay your loan or credit card bills on time. A low CIBIL score lowers your chances of getting credit. Even if some lenders are available to give you credit, you will be getting credit at very high interest rates. Let us now understand the impact of a low CIBIL score and how to improve it.
What is the Impact of a Low CIBIL Score?
The table below shows CIBIL score ranges and their meanings.
| CIBIL Score Range | Creditworthiness |
|---|---|
NA/NH | “Not Applicable” or “No History” There is no CIBIL history under your name, since you have not availed a credit card or loan till date |
350 to 549 | BAD Implies that you are in the high risk group and are not good with managing your credit. This can be due to late payments, missed bill payments, and other reasons of bad credit management. |
550 to 649 | Fair A CIBIL score in this range implies that you are fairly good at handling credit. |
650 to 749 | Good You are a less risky borrower and banks and NBFCs will be willing to lend to you generally. However, interest rates may be slightly higher and some loan terms may be a little rigid. |
750 to 900 | Excellent A CIBIL score in this range means that your score is amazing. All lenders will be ready to lend. And you will be given preferential interest rates after negotiating with lenders. |
What are the Factors Impacting your CIBIL Score in India?
The factors that impact your CIBIL score are:
Payment history: Payment history is one of the most important factors in computing your CIBIL score. It determines how regular you are with your loan or credit card payments.
Credit utilization: Holding very high dues or utilizing the maximum of credit cards with dues carried over for many months will affect your CIBIL score negatively.
Length of credit history: A longer credit history implies a higher CIBIL score.
Credit Mix: Having a good mix of credit like personal loans, credit cards, home loans, etc. reflects that you can handle various types of credit responsibly.
New Credit: Applying for multiple credit within a short duration of time will impact your CIBIL score as you will be shown as credit hungry. Lenders will get the idea that you are not able to manage your finances efficiently.
How to Improve A Low CIBIL Score?
Maintaining a good CIBIL score can be done through the following ways:
Timely bill payments: Bill payments have the highest weightage in computing your CIBIL score. So, make timely payments of your credit card bill or loan EMIs. Ensure that an alert is set up to remind you about the payment or make an auto payment.
Maintain a low credit utilization: Keep your overall credit utilization low. Experts recommend a CUR of 30% or below. For instance, say you have 2 credit cards which have credit limits of Rs. 30,000 and 60,000. Then the total credit limit is Rs. 90,000. The recommended credit utilization ratio is 30% that is Rs. 27,000. If the CUR is very high, the CIBIL score will be low.
Do not close old credit cards: Do not close old credit cards as it could reduce your CIBIL score. Credit bureaus give lower weightage to closed accounts. Also, your total credit limit will reduce which means you will be spending more overall. So, your CUR will increase and will bring down your CIBIL score. Also, it must be kept in mind that after 10 years, the closed credit card account will be removed from your credit report. This can bring down your score.
Do not apply for multiple credit: Restrict the number of credit card applications you make within a short time. This is because each time an individual applies for credit, a hard inquiry will be conducted, which will go down into your credit report. This will lead to a dip in your CIBIL score. Also, if there are lots of hard inquiries in your CIBIL report, then lenders will get the impression that you are not able to handle your finances well.
Review your CIBIL report regularly: Check your CIBIL report regularly. In this way, you can identify and dispute any errors that are bringing down your score. It is good to check your CIBIL report periodically. Wishfin, the first fintech to partner officially with TransUnion CIBIL enables you to do a free CIBIL score check and free CIBIL report download on its portal. Access the link here to do so.
Definition of Income Needs a Change to Know Your Spending Limit
As of now, you must have got to know the key to a good credit score lies in paying off the loan or card dues on time. For a timely payment, it is indeed important to keep the spends under control, isn’t it? Ideally, the total expenses must not exceed 40%-50% of your income. With a running loan or credit card, though, the effective income reduces and so you should spend accordingly.
For example – Ravi and Kishan earn INR 60,000 a month. While Ravi is servicing a home loan EMI of INR 20,000, Kishan is free of any credit. In that way, Ravi’s effective income is reduced to INR 40,000, compared to no change in the case of Kishan. So, Ravi should spend taking into account his effective income of INR 40,000 post the deduction of EMI and not INR 60,000 which is his take home salary.
You also need to do the same if your situation corresponds to Ravi’s. Tightening the spends would leave you with a reasonably higher amount for debt repayment and contingencies, if at all they arise. With a regular payment of the debt, your credit score will start to move upwards.
Cut Down on Your Dining & Other Expenses
Yes, the discount offers on dining via credit cards can tempt you to eat outside more often than not, resulting in footing the bill beyond the level of your comfort. You can even purchase your other requirements using the credit cards. But when the bill comes to your mailbox, you see both total dues and minimum due, with the latter getting calculated at around 5% of the former.
The minimum due would seem within your ability to pay back to the lender and so you do that. What happens then is that you fall into the never-ending debt trap as the credit keeps revolving around, decreasing your credit score. So, you need to know your spending limits to stay out of the debt trap. Spending within a limit would help save the money needed to pay your card dues in full. Doing so will raise your score gradually.
Frequently Asked Questions (FAQs)
