31-Oct-2018 written by : FSI-Team
Did you recently check your CIBIL score and found out it's not as good as you thought it was? If you answer is "yes", then you needn't worry. There are a lot of people who get a poor score due to lack of awareness or bad financial habits. However, that doesn’t mean that the damage can't be reversed. In fact, not only it's possible to improve your CIBIL score easily, but it's also something you can do yourself.
The best thing that you can do to give your credit score a boost is cultivating a habit of timely payments. By simply ensuring that your credit card bills and loan EMIs are paid on time, you can increase your score by 50 to 100 points over a period of just a few months. Besides, a good repayment record also helps to convince the lenders for new loans and credit cards.
When a self-dependant individual ends up in a cash crunch, it's usually because they don't monitor their expenses and have no budget either. If you want to gain control over your finances and prevent situations in which you have to search for loans for bad credit, then it’s really important that you create a budget and figure out exactly how much you are making per month and where your money is going. With a watertight budget, you will never have to worry about money as you will be always prepared.
What information does your credit report contain? Does it comprise the history of a personal loan, home loan, or credit card? If there is just one loan on the report, then your credit score will increase slowly. On the other hand, when your credit history is richer and more diverse, your chances of receiving a high score increase automatically. So, to improve your score, what you can do is maybe get a new credit card. In the same way, if there are details of just a credit card on the report, then you can apply for a small loan. That said, proper credit management is still important and you must pay the bills/EMIs on time.
Credit cards are an excellent tool that can be used to improve CIBIL score. In fact, when an individual needs a loan but doesn't have any credit history, then they are often advised by experts to apply for a credit card as it's easier to get than a loan. However, this doesn't mean that there are no risks. If you don't use your credit card responsibly i.e. delay payments or carry over your balance frequently, then it can hurt your score. So, you must avoid minimum payments as much as possible. Instead, try to lower your expenses so that your dependence on credit card reduces as well.
A lot of people don't know what credit utilization is even though it's one of the main factors that affect the credit score calculation.
Credit utilization is the ratio of your average credit card spending per month and the credit limit. So, if your credit card limit is Rs. 50,000, and you spend around Rs. 20,000 per month, then your credit utilization will be:
20,000/50,000 = 0.40 = 40%
If you want to increase your score, then you must lower your credit utilization. Ideally, it should never be more than 30-35%.
It's completely fine to have a desire to have a lavish lifestyle. After all, life is all about making the most of your time and enjoying new experiences. However, it's never a good idea to spend more than you can afford. A bad credit report has the potential to turn your world topsy-turvy as it's extremely difficult to get loans for bad credit. Thus, letting go of some of the luxuries that are costing you a lot can help you in the long term.
Checking your credit report allows you to identify mistakes and errors which you can get corrected and increase your score in the process.