30 Oct How to maintain my CIBIL score?
In this article, we are going to talk about what exactly is credit or CIBIL score and why is it so important. Also, we would discuss some essential tips and queries which would help you to maintain a perfect CIBIL score.
What is the Credit or CIBIL Score?
Credit scores are an essential parameter, on which a person is judged by a financial institution while applying for a loan.
Whenever you apply for a fresh loan, the first thing the bank would check is your recent credit score. For every individual, the credit score changes every single month. RBI has made it compulsory for all banks to check CIBIL report before sanctioning the loan.
Your CIBIL report contains summarised details about your entire credit records. It’s a three-digit number ranging between 300 to 900 and represents the financial credibility of the borrower, the higher, the better. A score of around 700 to 750 is considered a perfect score.
Why is it so important?
Every single financial institution uses different criteria to judge a borrower during the loan sanctioning process.
A good credit score is essential during the loan sanctioning process to avail of lower interest rates.
A person with better CIBIL score not only has higher chances of securing a loan, but also he/she can avail lower interest rates in comparison to a person with a worse CIBIL score.
All banks trust the CIBIL score as it accurately highlights the creditworthiness of an individual.
“A government bank, for instance, has two clear grades — over 700 and under 700 for most key loan categories. A score of 750 to 800 should put in the top grade for most lenders.” “So, if you have a higher score, you may be eligible for the best loan offers, and you will have to pay lower interest on your loan. However, these benchmarks differ from one lender to another” – Adhil Shetty, CEO, BankBazaar.com.
Some tips for maintaining your Credit score
1. Timely payments of credit cards:
To a newbie, Credit cards may look like a very lucrative scheme, but they possess some severe consequences if you make late payments. Late payments affect your CIBIL score. So you should make full payments of credit cards on time.
“The more you do this, the higher your score is likely to be. Avoid late payments, especially on unsecured debt like credit cards, because one late payment could hit your score hard,” Adhil Shetty, CEO, BankBazaar.
2. Credit score disputes.
Errors in the credit score are not so common, but you should always keep an open eye towards any disputes in your credit score. You can directly resolve disputes from CIBIL from their website.
3. Pay your EMIs on time.
While planning for a big financial commitment like buying a car or house you should always keep a check on your financial capability to repay so that you would still be able to pay your EMI in time.
Not only that you should have a backup plan in your pocket for any financial emergencies, timely payments of EMI help in maintaining a good credit score. It keeps a positive image of yours in front of the lender that you are capable of paying back loans.
4. Keep an eye while agreeing on a joint loan applicant.
If you are applying as a joint applicant for a loan for your relatives, friends, etc., you should always be aware that if your acquaintance is unable to pay back their loan amount, along with theirs, your credit score would be affected.
Let’s discuss some common queries regarding CIBIL scores.
1. Should you maintain old credit cards?
If you are making timely payments on your credit card for a long time, it will positively affect your credit score. It shows that you are economically stable enough to pay back your credits, and this factor would benefit you in your loan sanctioning process.
2. Should you withdraw cash from credit cards?
No, it is one of the most common mistakes which people make, that in the long term negatively affects them many financial institutions charge a higher rate of interest for withdrawing cash than just using it for transactions.
3. What should be my credit utilization ratio?
Many financial experts advise maintaining a credit utilization ratio at around 30%. It means that you should not be using your credit card to make your every single financial transaction.
4. How many times can I apply for loans and credit cards?
There is no upper limit but most financial experts advise refraining from multiple credit inquiries. You should apply for an additional loan and credit card only when it is highly necessary; this would help in maintaining a good credit score.