How to Improve Your Low CIBIL Score to Avail Personal Loan?Since the Covid-19 pandemic emerged, our lives have changed. The new normal is working from home or managing the business online. But working online is not possible for everyone and this has created the need to avail personal loans to meet urgent financial requirements. Based on the level of emergency, individuals can borrow secured or unsecured loans. If the financial requirement is of a small cash loan, an instant personal loan app can help whereas a high loan amount is a long-term loan that requires a collateral.
A personal loan is a type of unsecured loan. Being collateral-free, it is easily available but entails a higher rate of interest as compared to secured loans. Lenders are thus very cautious while sanctioning the personal loan and expect the borrower to have a good CIBIL score and/or a steady flow of income, so as to assure a borrower’s creditworthiness in repaying present and potential loans. So, it is important that a borrower works on improving his low CIBIl Score.
What is the importance of a good CIBIL Score?CIBIL score is a 3-digit numeric synopsis of your credit history that is considered by lenders across India for evaluating a borrower’s creditworthiness before granting them any kind of loan, including a personal loan. CIBIL score in the range 750 -900 is considered a good score with 900 being the maximum limit. Any score between 550 – 749 is considered an average score. Considering the risk element, lenders are often skeptical in approving loans for borrowers with a low/average CIBIL score. Any score below 550 is considered a low CIBIL score. If you have a low CIBIL score, then it implies to the lender that you have not maintained financial discipline with respect to repayment of past debts, so you are in a high-risk category, this could ultimately result in your loan/credit card application getting rejected. So, a good CIBIL score is an important criterion for getting your personal loan approved by lenders.
What leads to a low CIBIL Score?Key reasons are:
- Inaccurate personal details of a borrower leading to error in CIBIL reports
- Outstanding loan/credit card balance
- Delay/default in repaying EMIs
- Having multiple debts at one time
- Higher credit utilization of 30% or more than the credit limit sanctioned
How does one improve their CIBIL Score to avail Personal loan?With sound financial management, a borrower can improve their CIBIL score and get a personal loan easily approved.
Pay outstanding on the debtPay your loan or credit card dues on time. This not only helps in avoiding late payment charges but also helps in maintaining a good CIBIL score. Paying only the minimum amount to reduce credit card bills entails interest on the pending amount and tax in the next month’s billing cycle, resulting in huge debt.
Limit credit utilizationAbide by the credit utilization limit that differs as per individual credit cards. It should not exceed 30% of the sanctioned credit limit. Rising above this ratio can adversely impact your CIBIL score. Also, not utilising your credit card at all also leads to a low CIBIL score, so use it prudently.
Avoid multiple debtsHaving multiple debts also can negatively impact your CIBIL score. Lenders find it risky to approve loans to individuals who already have ongoing personal loans. So, try to limit your application for multiple loans at one time and maintain a time gap between various loan/credit card applications to improve your CIBIL score.
Regularly track your Credit ReportHaving a regular check on your credit report brings to notice any kind of inconsistencies or errors in the report. These can then be immediately reported/rectified, otherwise, such inconsistencies or errors could adversely impact your CIBIL score.
Have a wide credit portfolioOne can include a mix of secured/ unsecured loans, provided they maintain a sound financial repayment structure to clear the loans on time. This helps to improve your credit history, resulting in a good CIBIL score.
Keeping a record of your old debtYour CIBIL score indicates your credit history, so maintaining a record of your old debt helps retain a stable credit history. This not only leads to a good CIBIL score but also assures lenders of your financial prudence in repaying potential debts, including personal loans on time.
It is not possible to improve your low CIBIL score overnight, but with careful financial management, it can be improved over time.