A CIBIL score is like a report card for your financial health. It shows banks and financial institutions how responsible you are with credit. A good CIBIL score (750 or above) makes it easier to get loans at lower interest rates, while a poor score can lead to loan rejection or higher interest rates.
If your score is low, don’t worry! Here are five simple tips to improve your CIBIL score and make loan approvals easier.
1. Understand Your CIBIL Score and Its Importance
Your CIBIL score ranges from 300 to 900. This number represents your creditworthiness, or how likely you are to repay your loan on time. Banks and lenders check this score before approving loans.
Why is it important?
- A score above 750 increases your chances of loan approval.
- A score below 600 makes it difficult to get a loan and may lead to higher interest rates.
- 35% of your score depends on timely EMI and credit card payments.
Pro Tip: The Reserve Bank of India (RBI) has introduced new credit rules that make it easier to improve your score. Stay updated!
2. Keep Your Credit Card Usage Below 30%
If you use too much of your credit card limit, your score may drop.
How does credit card usage affect your score?
- Using more than 30-40% of your credit limit can lower your score.
- High credit usage shows higher financial risk (30% weightage in CIBIL calculation).
Smart Move: Keep your credit usage below 30%. For example, if your credit limit is ₹1 lakh, try not to spend more than ₹30,000.
3. Maintain a Long and Healthy Credit History
A longer credit history builds trust with lenders.
Why does this matter?
- 15% of your score depends on your credit age and repayment behavior.
- Older loans that were paid on time improve your credibility.
Golden Rule: Never close old credit cards—even if you don’t use them, they help build a strong credit history.
4. Choose the Right Type of Loans
Not all loans affect your CIBIL score the same way.
Secured vs. Unsecured Loans:
- Secured Loans (Home Loan, Car Loan) → Boost your score (low risk for lenders).
- Unsecured Loans (Personal Loan, Credit Card) → May lower your score if taken in excess.
Key Insight: 10% of your CIBIL score depends on your loan mix. Try to maintain a balance between secured and unsecured loans.
5. Avoid Multiple Loan Applications
Applying for too many loans in a short time can harm your CIBIL score.
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Why?
- Each loan application leads to a hard inquiry, which can slightly reduce your score.
- Too many rejected applications signal high risk to lenders (10% weightage in CIBIL calculation).
Best Practice: Apply for loans only when necessary and maintain a gap between applications.
Conclusion
A good CIBIL score makes it easier to get loans with better terms. By paying your EMIs on time, using credit wisely, and maintaining a strong credit history, you can improve your score and achieve financial freedom. Start following these tips today for a better credit future!
Disclaimer: The information provided in this article is for general informational purposes only. While we strive for accuracy, we do not guarantee the completeness, reliability, or timeliness of the content. Readers are advised to verify details from official sources before making any decisions.