Understanding the Importance of CIBIL Rating & Ways to Improve It

CIBIL RatingA credit rating is nothing but a number, which is computed by an approved credit rating agency. These days the masses are more conscious than that in the past. It is because of this risen awareness that jargon like credit rating and CIBIL score are heard often across almost every tier of the society. The rating or the number actually provides a hint of an individual’s credit worthiness. This score proves to be a crucial tool for conventional lending agencies while processing or approving a loan application of an individual. Before borrowing the money, creditors need to have an indication of the probability of default of every loan seeker who approaches them, for obvious reasons.

There is still a way of explaining the importance of credit score. Flatly, it tells a lender or credit institutions like banks, how likely is it that a borrower will repay a loan based on the individual’s

  • Pattern of credit usage in the past and
  • Loan repayment history

It is possible for every individual to check his or her own credit history. In order to check the history, one should obtain a copy of one’s credit report. In India, one can avail this from any of the three rating agencies, namely CIBIL, Experian or Equifax. The records include every loan or credit account that one has along with detailed information of the concerned individual’s entire payment history. Thus, the credit score is calculated based on a person’s financial track record as noted in the individual’s credit report.

Thankfully, it is possible to improve one’s CIBIL score. However, one should remember that there is no quick-fix procedure to achieve this overnight. It takes some time for the process to take effect. But, it is possible to improve one’s score significantly within a short time frame and to achieve it one has to adhere to a set of rules. As such, it is an excellent habit to check one’s credit scores at regular intervals so that one remains updated about one’s financial health in a periodic manner.

As the first step towards improving one’s CIBIL rating, one should keep the credit card balance as low as possible. A higher credit limit allows an individual more flexibility in making payments and also helps in keeping the balances low. Setting up payment reminders proves helpful in avoiding missing payment deadlines. Credit score drops because of missing payment deadlines. In this age of digital technology, it is pretty easy to ensure the monthly balance paid automatically through electronic transaction directly from one’s bank account. Moreover, one can have the bank shoot timely reminders through SMS or emails as well. If one spends over 30% of one’s credit card limit on monthly basis across all existing cards, it negatively affects the individual’s credit rating. So, ask for higher credit limit and maintain or cut down the monthly expenditure below 30% of the credit limit. This is an effective means to improve one’s credit score. In fact, improving one’s credit score is not impossible, provided one sticks to the right strategies with dedication and involvement.