One of my reader Mr. Anil Gupta (Name Changed) from Jaipur sent me a query on how to improve CIBIL Score. I must say that there is no scientific formulae to improve credit score. Only Brahamastra to improve CIBIL score is to follow financial discipline & maintain healthy Credit Portfolio. Lot of my readers have availed paid services of some online portals to improve CIBIL Score but trust me none of them can help you to improve CIBIL score immediately. These portals only fool customers. Only Right advice & Credit guidance can help. Lets understand from following case study of Mr. Gupta, How we can improve CIBIL Score.
In June, 2007, Mr. Gupta opted for credit card from one of leading MNC bank. The bank executive assured that card is free for lifetime but next year his credit card statement had a transaction of Rs 2000 towards credit card annual fees. He approached bank multiple times to reverse the fees but bank refused to reverse the fees. He paid balance outstanding excluding annual fees of Rs 2000. Now in May’12, he approached one of leading PSU bank for Home Loan of 30 lacs but his loan application got rejected as his CIBIL Score is 675. He approached me regarding same. On studying his CIBIL report, i observed that Rs 26754 is being “Settled” by MNC bank against his credit card account. This entry impacted his CIBIL Score adversely. I sent him 6 points to improve his CIBIL Score based on his CIBIL Credit report and yesterday i received call from Mr Gupta that his CIBIL Score is now 762. Recently his home loan got sanctioned. Lets understand 5 important points which can help to improve CIBIL Score
1. Make All Payments on Time:
The most important point for Healthy CIBIL Score. It is better to opt for ECS facility for payment of Home Loan EMI’s, Credit Card Bills etc. on time. All the payments should be made atleast 5 working days before due date. If you are making payment through cheque then it is better to drop the cheque 10 days before due date as cheque clearance take time. While making payment through cheque we tend to ignore holidays falling between due date and date we dropped the cheque. In 89% cases customer dispute that i dropped cheque before due date & still bank levied charges for late payment. Please note that banks consider the date of payment not the date of cheque drop. I give following example to my reader.
Assume, your salary is due on 5th of every month and your employer handover cheque on 5th evening i.e. Friday. Saturday and Monday is a bank holiday. Your cheque will be cleared only on 11th of that month. From employer perspective he gave salary on 5th but from your perspective, you received it only on 11th. It is critical to make all payments on time to improve CIBIL Score.
2. Don’t show credit Hungry Behavior:
Now lets take e.g. of my blog subscriber Ms. Shwetha from Cochin, she passed out from college in 2010 and got a job in call centre. After opening salary account, she received call from 6-7 banks for credit card and she availed 5 credit cards. It shows credit hungry behavior. She got married in May’13 and she applied for home loan along with her husband. Home Loan got rejected due to low CIBIL score. Reason 5 credit cards shows credit hungry behavior and secondly she missed payment due date on many occasions as she used to forgot due date of few credit cards. It is advisable to keep only 2-3 credit cards. Also don’t keep changing credit card every now & then. Pls remember older credit card with regular payment record helps you improve CIBIL score rather new credit card.
Another e.g. of credit hungry behavior is by availing multiple loans simultaneously like personal loan, Car loan, Education Loan etc. Ant any point you should not have more than 2 loans.
Lastly too many credit enquiry in your CIBIL database by financial institutions shows credit hungry behavior. Many readers keep asking me this question, If i pull out my CIBIL score then will it impact my credit score. Answer is NO, it will not impact your CIBIL Score if report is pulled by you.
Credit hungry behavior is a big hindrance to improve CIBIL Score.
3. Use Credit Cards Responsibly:
95% of my reader’s CIBIL score is adversely impacted due to Credit Cards. I wrote article How to use Credit Cards Smartly? but if used irresponsibly then credit card is a biggest curse. It is advisable to exhaust only 30%-40% of available credit limit every month. Any excess usage might impact CIBIL score. If you need more limit then opt for 2nd card and plan your usage accordingly that it should not go beyond 40% on either of cards. If you are planning to make big purchase then you can request bank to increase your credit limit. If your track record is good then bank will happily increase your limit.
Another blunder committed by my readers is that they opted for Settlement in case of payment dispute. Kindly note that bank report such cases as “Settled” in CIBIL and it adversely impact CIBIL score. Never ever opt for settlement rather close the account by clearing 100% payment outstanding. In case of dispute, you may approach bank ombudsman but by not paying & reaching settlement with bank will not help you.
Lastly whenever you close any credit card then it is recommended to take NOC from credit card provider. In many cases, customer place request for closure and then don’t follow up. Credit Card is closed only after receiving NOC from bank and your CIBIL database should be updated by bank within 45 days else it may impact your CIBIL Score negatively.
4. Secured & Un-Secured Loans:
I have highlighted this point in many posts. Secured Loans like Home Loans improve CIBIL Score as Home Loan builds long term appreciating asset whereas un-secured loans like car loan (depreciating asset), personal loan, credit card debt etc negatively impact CIBIL Score. It is advisable to opt for right mix of secured loan & un-secured loan. You credit portfolio should be 80% secured and 20% un-secured loans.
5. Credit Worthiness:
Consistency builds credibility & credibility improve CIBIL Score. Good history of timely payments and responsible credit behavior are key to credit worthiness. CIBIL Score of 750 score or more shows credit worthiness and above 800 CIBIL score means you are in elite club.
These days almost 100% loans are approved for customers with CIBIL Score of more than 700. There is no quick fix solution to improve CIBIL score. You have to work on your credit portfolio to improve CIBIL Score. Hope the above mentioned points will help to improve CIBIL Score. You can get your CIBIL Score online by clicking Here
If you have any generic query regarding CIBIL score then you may post in following comments section of this post. For personalized consultation on how to improve CIBIL Score (Chargeable basis), kindly mail your CIBIL Report along with your query to me by clicking CIBIL Score Query
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