How to improve your credit history and score
Nov 09, 2013
Source : The Times of India

 

DELHI: An individual’s CIBIL report and score, other than his/her income, is the single most important tool used by a lender to evaluate application for any loan or credit card. It is therefore important for you to check your credit report and score before applying for a loan, so that it is viewed favourably by lenders.

Accessing and understanding your CIBIL report will help you assess your own credit exposure and enable you to “see yourself as loan providers” do. If your credit score is low or if the credit report shows defaults and delayed payments you can always take corrective actions and improve your credit score before applying for the loan.

Your credit score is simply a numeric indicator of your credit history which reflects your financial and credit health. CIBIL calculates the credit score through advanced analytics and assigns a number between 300 and 900 to a borrower, based on his/her credit history. The closer your score to 900, the more confidence the credit institution will have in your ability to repay the loan and hence, the better the chances of your application getting approved.
While each bank will have its own credit scoring cut-off based on the credit sanctioning policies, it has been observed that most banks are lending to consumers with a credit score of 750 and above.

If you have a good credit score and healthy credit history you may avail loans and credit cards faster and without any hassles. However if your credit score is low due to poor credit history you can always work towards improving it. Financial discipline coupled with regular repayment of loan and credit card EMIs will help improve your credit history and score significantly.

Here are a few tips to improve your credit score:

  • Avoid late payments or defaults as far as possible: Your payment history has a significant impact on your Score. Late payments are negatively viewed by lenders because this indicates that you are having trouble servicing your existing obligations
  • Reduce your utilization of credit card limits: While increased spending on your credit cards may not necessarily negatively affect your Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact your Score. It’s always prudent to not use too much credit.
  • Maintain a healthy mix of credit: A higher concentration of home loans or auto loans (commonly known as Secured Loans) is likely to be more favourable for your credit score than a large number of unsecured loans. Although unsecured loans offer easy access to finance, it’s also by far the most expensive form of credit. More the number of unsecured loans with high utilization, larger are the payments resulting from its high rate of interest
  • Avoid behaving “Credit Hungry”: If you have made many applications for loans, or have recently been sanctioned new credit facilities, a lender is likely to view your application with caution. This ‘Credit Hungry’ behaviour indicates your debt burden is likely to, or has increased and hence may be less able to service additional debt obligations
  • Monitor your co-signed, joint accounts monthly. 
  • Monitor the loan accounts for which you have stood as a ‘guarantor’
  • Review your credit score and history frequently

Your CIBIL report and score not only determines whether or not you qualify for a loan, but it may also have an impact on the terms and conditions you can avail on the loan. The higher the credit score, the better may be your chances of availing the loan faster and on favorable terms. It is advisable to check your CIBIL Report before applying for a loan. Timely payments of loan EMIs is most important for maintaining a good credit history and a healthy credit score!

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