9 Tips On How To Build Or Maintain A Healthy CIBIL Score

Borrowing is a part and parcel of a routine life to attend to an unanticipated expense or for a planned high-value purchase of a product like a car or to fund one’s house and so on. One often needs to approach a bank or a non-banking finance company (NBFC) to get access to additional financial resources if personal savings are not enough.

The lender, on the other hand, banks on the creditworthiness of the borrower to evaluate a loan application. This is done by looking at the credit score, a three-digit number that is representative of the credit history and signals how likely is it that the borrower will repay the money along with all dues.

CIBIL, or what has now become Transunion CIBIL, has become synonymous with credit scores as it was the first among the lot to start the credit scoring platform.

The credit score gets built over time and gets updated with new data points that tends to show how the borrower has behaved with credit availed by them. The primary way it starts building is by a person availing a loan or a proxy loan product such as a credit card, which is also another form of revolving credit with an interest-free period.

Tips To Build and Maintain CIBIL Score

1. Gold Loan As A Primer:

If a person doesn’t have any credit history, it creates a problem as no score is generated for them. But one can solve this problem by availing a loan and a gold loan, which itself is not dependent on the CIBIL score, and can help in building a credit score easily. One can apply for a small amount as a gold loan by providing a personal or family-owned gold jewellery as a collateral.

2. Plastic Money To The Rescue:

A credit card is another good way to build a credit history. Many banks offer complimentary credit cards for salaried individuals based on the salary account. The important aspect to note is that one needs to pay the dues on time, just like any other type of formal loan and the basic need is to pay the minimum amount every month, not necessarily the entire amount.

3. Repayments:

Irrespective of the type of loan one has availed, one thing to be kept in mind is that to build a healthy CIBIL score, the repayment schedules should be followed religiously.

4. Mix It Up:

Loans are of two types, secured or collateral-backed and unsecured. Lenders like borrowers with a diversified credit history that is not dependent only on unsecured loans. If one has a loan each of the two kinds, and one lands some extra money, he or she should first pay back the unsecured loans as it helps the CIBIL score.

5. Do Not Max Out Credit Cards:

While using credit cards the higher one goes in using the maximum allowed limit, the lower the creditworthiness and CIBIL score as the potential repayment ability declines and lenders see it as a negative. So, one should try not to hit the ceiling or the upper limit in terms of credit.

6. Window Shopping But Be Cautious:

It is natural for a borrower to look around before deciding on a lender to borrow from. But one shouldn’t go overboard in terms of applying to multiple lenders as they are seen as a sign of how desperate one is to avail a loan.

7. Fact-Check:

Sometimes errors crop up while calculating the CIBIL score due to delayed or missed update from one or more lenders about the credit availed by a person. This could lead to a low score and affect one’s ability to borrow. If one keeps checking the score periodically, one can make out if any such errors has crept up in the CIBIL score can be corrected as per the process.

8. Small Loan Versus Large Loan:

Instead of availing a large loan that puts undue pressure in repayments, one can look at small-sized loans for a short duration and once repaid, and if need arises, can borrow again. This is because small loans are easier on the wallet in terms of repayments.

9. Chip In As Co-Applicant But Keep An Eye:

There are times when one has not availed a loan himself or herself but has come as a co-applicant or guarantor to a loan taken by a relative or friend. In such cases one needs to make sure that the borrower is paying back the money on time as skipped payments may have a negative impact on the CIBIL score of the co-applicant or guarantor even without being the person who has taken the loan.

Conclusion

The CIBIL score, which captures one’s creditworthiness in the eyes of any formal lender such as a bank or a NBFC, is the key driver of any loan evaluation process. In general, lenders look at a high CIBIL score to lend money. But if a person has just entered the job market and has no credit history they may not have a CIBIL score. In such cases, they can build a credit history via taking a gold loan or using credit cards.

For others, too, it is important to keep an eye and maintain a healthy score by repaying loans on time, not maxing out the credit card limit, keeping a balance loan profile with minimal unsecured loans and more.

IIFL Finance offers several loan products to borrowers including a gold loan, a personal loan and a small business loan, besides other secured loans, through an easy digital process. It also offers the lowest interest rates and repayment terms to borrowers with high CIBIL scores.