The Reserve Bank of India has directed all financial institutions to take an individual’s credit score into consideration while reviewing their loan application. In effect, anyone who wishes to avail a loan in India has to undergo a CIBIL score check, failing which they will not be considered an eligible candidate for the loan.
For the financially uninitiated, the credit or CIBIL score of an individual is a 3-digit representation of their creditworthiness. There are four companies that manage the credit information of all Indians, TransUnion CIBIL being the oldest and most reliable. As such, credit score is also alternatively called CIBIL score. A good CIBIL score is instrumental for obtaining loans from the market. Lenders are also more inclined to provide better personal loan interest rates to applicants holding a high credit score.
Individuals with low scores should take measures to improve it before applying for a personal loan. You will find it difficult to secure a loan if your CIBIL score is anything below 750. You may improve your CIBIL score but following the steps mentioned below:
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Clear your credit card dues
There is no easier and quicker way of improving your credit score that settling your credit card dues. As credit cards are a form of unsecured advances, they have a massive impact on one’s credit rating.
Clear all your outstanding credit card dues, and you’ll notice a positive change in your credit rating almost immediately. It is also advisable to maintain no more than two credit cards as clearing multiple dues may turn out to be cumbersome.
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Acquire your credit report and look for inaccuracies
As mentioned earlier, four credit report agencies manage and monitor the credit scores of every individual in India. At times, mistakes have been known to happen on these reports due to human error.
As such, you must check your CIBIL score and comb it through for any inaccuracy. For example, if you have recently paid off an outstanding loan, it should reflect positively on your score. If that hasn’t happened, you must take up the matter with the credit agency and get it rectified immediately. It will improve your credit score quickly.
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Pay your EMIs on time
Timely payment of EMIs makes you a credible borrower. Your loan repayment behaviour is inarguably the most crucial factor affecting your CIBIL score. Even a single instance of late or non-payment will skew your score negatively. So, it is vital that you pay all your existing EMIs within the due date. Else, you’ll find it challenging to obtain a personal loan with bad credit score. To make sure that your EMIs are not beyond your financial capability, check it using an online personal loan EMI calculator before availing a loan.
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Stay well within your credit utilisation limit
Another quick way to improve your CIBIL score is to maintain a low credit utilisation ratio. Ideally, it should be less than 50%. So, if your credit card limit is Rs. 1 Lakh, you should not utilise more than Rs. 50,000 at any given point.
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Avoid multiple credit enquiries in a short timespan
Making too many enquiries or applying for multiple loans in quick succession indicates that you are credit hungry and has a negative impact on your score.
These steps will help you get your CIBIL score back on track in a matter of months. There are, however, certain lending institutions which offer personal loan for CIBIL defaulters as well.
You may obtain an instant loan for CIBIL defaulters from NBFCs. One of the most significant advantages of availing a loan from NBFCs are that they provide pre-approved offers that make availing loans quick and easy. However, it is always advisable to improve your credit score before applying as it will help you negotiate better terms on your loan.