How can I improve my CIBIL or credit score?
There are five fundamental elements that influence your Credit Score - Credit Repayment History, Credit Utilization, Credit Mix, Credit Age and Credit Enquiries.
Here, we will clarify how each of these credit practices have an effect on your Credit Score. What is your Credit Score? - A Credit Score is a three digit number that predicts the probability of default in the next 12-18 months. The Credit Score is determined by the credit bureau using propreitory technology and their methodology in not public knowledge. In India, the most popular credit agencies are CIBIL (Trans), Experian and Equifax. All the bureaus have now begun to use a standard score range from 300 to 900. Higher the score, the better it is. Let us examine the major criteria that has an influence on your credit score: Credit Repayment History - This is the most important attribute in computing your Credit Score and tends to make up around 35% of your score. Fundamentally it gauges how frequently you make the payments on time. Therefore, if you'd like to enhance your score - the best thing you can do is to make the payments in a timely manner on all your credit and loan obligations. Credit Utilization - This measures what proportion of your accessible credit are you using. It is essentially an aggregate of balances divided by sum of credit limits. Excessive credit line utilization tends to have a negative impact on your credit score. Similarly, not utilizing credit lines at all will not contribute towards building your credit score. It is best to ensure that credit line utilization is kept below 50% of the authorized credit limit, so as to make sure it has the most positive impact on your credit score. Credit Mix - This is the blend between secured and unsecured credit lines in your credit portfolio. It has been demonstrated that people with a home loan are more like to make a regular repayment than who don't have a home loan. Basically don't open too many credit card accounts because too much unsecured exposure can hurt your credit score. Credit Age - This is the vintage/age of the account from when you first availed it. The older the age of an active credit facility, the better the positive impact on the credit score. This combined with regularity of repayment, has the most positive impact. The more experience you have of managing credit, the higher is your credit score. It is therefore advisable to keep your old credit cards open. Credit Enquiries - This is an indicator of your desire for new credit. Try not to search for new loans unless you truly need it. Each time you apply for a loan/credit card, the prospective lender will get a copy of your credit report and this will leave an impression on your bureau report. Too many such impressions are likely to reduce your credit score. In the event that you need to enhance your score, don't make too many enquiries if your first loan application gets rejected. You can however obtain your own credit report without causing harm to your credit score..