5 Effective Ways to Boost Your CIBIL Score for Easier Loan Approval and Better Interest Rates

Your CIBIL Score is more than just a number; it’s an indicator of your financial credibility. Lenders refer to it when determining your eligibility for loans and credit cards, and a strong score can mean the difference between getting a loan at a favorable interest rate or facing rejection. If you’re looking to apply for credit, improving your CIBIL Score can help you not only qualify but also secure a lower interest rate. Here’s a detailed guide on how to improve your CIBIL Score with five practical steps.

1. Clear All Existing Debt

One of the quickest ways to boost your CIBIL Score is to clear any outstanding debt. Debt left unpaid is flagged in your credit report, signaling to lenders that you might be a risk. This can drag down your score and hurt your credit profile. Here’s how to effectively clear debt and boost your score:

• Adhere to your repayment timeline: Following your chosen repayment schedule will help build a positive credit history.
• Make prepayments or foreclose your loan early: If you can, repay the loan before the end of its term. Making prepayments or foreclosing a loan indicates that you are financially disciplined, which helps improve your score.
• Avoid missing payments: Missing payments or delaying them can negatively affect your score for a long time.

Clearing outstanding debts and responsibly managing future ones will gradually build your credit profile, raising your CIBIL Score over time.

2. Pay Your EMIs on Time

Timely payment of Equated Monthly Installments (EMIs) is essential for a healthy credit score. Late or missed payments directly impact your CIBIL Score, often causing a steep decline. Here’s why on-time EMI payments are vital and how you can ensure you stay consistent:

• Set up automatic transfers: Automatic transfers ensure your payments are on time, reducing the risk of missing a due date.
• Keep your account funded: Automated payments require adequate funds, so be sure your account has enough money to cover each EMI. This will also help avoid late charges.
• Impact of delayed payments on CIBIL Score: CIBIL reports note not only missed payments but also the number of days delayed. Even a single late payment can negatively impact your score, so it’s essential to be diligent.

Timely EMI payments show lenders that you are reliable and consistent, ultimately contributing to an improved CIBIL Score.

3. Limit Your Credit Utilisation

Credit utilization is the amount of credit you’re currently using compared to your credit limit. High credit utilization, often defined as using over 50% of your available limit, can signal financial distress to lenders. To manage credit utilization responsibly:

• Stay below 50% of your credit limit: Ideally, keep your credit utilization rate at or below half of your available limit. This indicates that you’re able to manage your expenses within your income.
• Pay off credit card balances in full: Avoid carrying balances month-to-month. Paying off your credit cards in full each month will help keep your utilization rate low and prevent interest from accumulating.
• Avoid consistently maxing out your credit cards: Using your credit cards to their full limit frequently can impact your CIBIL Score even if you make timely payments.

A controlled credit utilization rate suggests a good balance of spending and repayment, positively impacting your credit score.

4. Report Discrepancies in Your Credit Report

Sometimes, a low credit score might not reflect your financial behavior but rather errors in your credit report. For example, a lender might fail to update a recent payment, or there could be a misreported debt. By identifying and rectifying errors promptly, you can protect your score from inaccuracies. Here’s what to keep in mind:

• Check your CIBIL report regularly: Keeping track of your credit report will help you spot any discrepancies, like missed payments that were actually completed.
• Report errors promptly: If you identify any discrepancies, inform your lender or the credit bureau immediately to rectify them.
• Use resources for a free CIBIL check: Bajaj Finserv, for instance, offers a free CIBIL Score check on their website. Regular checks keep you aware of your credit status and allow you to take action if any inaccuracies arise.

Rectifying discrepancies ensures that your score accurately reflects your financial behavior, helping to boost your CIBIL Score.

5. Borrow a Mix of Credit

The type of credit you borrow impacts your credit score as well. A mix of secured and unsecured loans demonstrates financial responsibility and experience with various types of credit, which can improve your score. Here’s how to manage credit types:

• Use both secured and unsecured loans: Secured loans, like home or auto loans, and unsecured loans, like personal loans or credit cards, give a healthy mix of credit on your report.
• Build a credit history: A healthy credit history is built through responsible borrowing and repayment. By managing a variety of credit products, you demonstrate experience in handling diverse financial responsibilities.
• Avoid ad-hoc borrowing: Only apply for credit when necessary. Excessive applications for credit within a short span can negatively affect your score and make lenders question your creditworthiness.

Borrowing a mix of credit types and managing them responsibly over time adds to your credibility as a borrower, gradually boosting your CIBIL Score.

Final Thoughts

Maintaining a good CIBIL Score is an ongoing process that requires patience and consistent effort. By implementing these strategies, you can gradually improve your score and make it easier to qualify for loans with lower interest rates. Remember that once you start these steps, it can take between six months to a year for improvements to reflect on your credit report.

Responsible borrowing, timely payments, and monitoring your credit status will help you maintain a good score, ensuring that you’re in the best position to receive favorable loan terms when you need them.