Tips on How to Increase Your CIBIL Score

Your CIBIL score plays a crucial role in determining your financial health in India. Whether you're applying for a home loan, car loan, or even a credit card, lenders rely heavily on this three-digit number to assess your creditworthiness. A low score can lead to loan rejections or high-interest rates, while a high score opens doors to better financial opportunities.

In this article, we’ll cover what a CIBIL score is, how it is calculated, why it matters, what lowers it, and, most importantly, how you can improve it.

What is a CIBIL Score?

A CIBIL score is a three-digit number ranging from 300 to 900 that reflects an individual’s credit history and repayment behavior. It is issued by TransUnion CIBIL, one of India’s major credit bureaus. Banks and financial institutions use this score to evaluate a borrower's repayment capacity before approving any credit applications.

Generally:

• A score above 750 is considered excellent and increases your chances of loan approvals with favourable terms.

• A score between 650-750 is considered average, and you may still get a loan but at higher interest rates.

• A score below 650 is considered low, which may result in loan rejections or stringent approval conditions.

How is the CIBIL Score Calculated?

CIBIL calculates your credit score based on several factors, each carrying a different weightage:

1. Payment History (35%) – Timely repayment of loans and credit card dues boosts your score. Late payments, defaults, or settlements negatively impact it.

2. Credit Utilization Ratio (30%) – The percentage of credit you use compared to your total credit limit. Keeping it below 30% is ideal.

3. Credit History Length (15%) – The longer your credit history, the better your score. Having old credit accounts with a positive repayment history helps.

4. Credit Mix (10%) – A good mix of secured (home loan, car loan) and unsecured credit (credit cards, personal loans) positively impacts your score.

5. New Credit Inquiries (10%) – Too many hard inquiries (loan/credit card applications) in a short span can lower your score.

Why Does Your CIBIL Score Matter?

A high CIBIL score gives you several financial advantages:

• Faster loan approvals – Banks prefer applicants with scores above 750.

• Lower interest rates – A higher score helps you negotiate better interest rates.

• Higher credit limits – Banks and credit card companies may offer a higher credit limit.

• Better credit card offers – Premium credit cards with attractive rewards and benefits are usually offered to high-score holders.

• Job prospects – Some employers check credit scores for roles that involve financial responsibility.

What Lowers Your CIBIL Score?

Several mistakes can damage your credit score:

1. Late or missed payments – Even a single default can reduce your score significantly.

2. High credit utilization – Consistently using more than 50% of your credit limit makes you seem credit-hungry.

3. Frequent loan/credit card applications – Multiple hard inquiries indicate desperation for credit, lowering your score.

4. Settlements and write-offs – If you settle a loan for less than the outstanding amount, it impacts your score.

5. Lack of credit history – Not using credit at all may result in a low or ‘NA’ score.

6. Multiple unsecured loans – Depending too much on unsecured credit affects your profile negatively.

How to Improve Your CIBIL Score?

If your CIBIL score is low, don’t worry. You can improve it by following these steps:

1. Pay Your Bills on Time

Your payment history has the most significant impact on your CIBIL score. Set up reminders or automate payments for loans and credit cards to avoid late payments.

2. Keep Your Credit Utilization Low

Try to keep your credit utilization below 30% of your total credit limit. For example, if you have a limit of ₹1,00,000, try not to spend more than ₹30,000.

3. Avoid Multiple Loan Applications

Each loan or credit card application triggers a hard inquiry, which lowers your score. Instead, check your eligibility before applying.

4. Maintain a Healthy Credit Mix

Having a mix of secured (home/car loans) and unsecured loans (credit cards) helps maintain a balanced credit profile.

5. Review Your Credit Report Regularly

Check your CIBIL report for errors or fraudulent activities. If you find any discrepancies, report them immediately to CIBIL.

6. Do Not Close Old Credit Accounts

Old accounts with a long and positive credit history boost your score. Keep them open and active.

7. Take a Credit Builder Loan

If you have a low score or no credit history, consider a small personal loan and ensure timely repayments to build your credit profile.

8. Avoid Becoming a Loan Guarantor

If the primary borrower defaults, it negatively impacts your credit score. Be cautious before guaranteeing a loan.

9. Settle Past Dues

If you have any outstanding dues, clear them as soon as possible to reflect positively on your credit report.

Your CIBIL score is a reflection of your financial discipline. Keeping it high ensures better financial opportunities, while a low score can limit your access to credit. By following the right financial habits—paying bills on time, using credit wisely, and maintaining a healthy mix of credit—you can steadily improve and maintain a good CIBIL score.

Start implementing these tips today and take charge of your financial future!

Frequently Asked Questions (FAQs)

1. How often should I check my CIBIL score?
Checking your score once every 3-6 months is ideal. You can get one free report per year from CIBIL.

2. How long does it take to improve my CIBIL score?
It typically takes 3-6 months of disciplined credit behavior to see improvements.

3. Can I increase my CIBIL score in one month?
Significant improvements take time, but paying off outstanding dues and reducing your credit utilization can give a quick boost.

4. Does checking my CIBIL score lower it?
No, checking your score through soft inquiries does not impact your score. Only hard inquiries from lenders affect it.

Your CIBIL score is just one part of your financial journey—having the right guidance makes all the difference. Don’t navigate it alone! Talk to a trusted financial expert who understands your goals and helps you make smarter investment decisions. Let’s build your wealth, together!

Warm regards,

Tejas Lakhani
Chartered Accountant and finance professional
Fincare Services