21-Mar-2016 written by : FSI-Team
A Low CIBIL score spells trouble and indicates that all is not well with your financial world; whether it’s due to lack of financial management or discipline or both. A low CIBIL score could be due to a chronic problem like late payments or a one off issue like not taking a NOC for a loan for which the term has ended. Whatever be the issue there is a solution, however sometimes the road to a better score may take time and requires patience.
The first thing that needs to be done is to identify the cause due to which the score is low. First thing to do is to run a CIBIL score check. There can be a host of reasons due to which the credit score is low; this could be complex reasons or just a simple lapse. Working on trying to improve the score without understanding the cause for the low score is useless. Depending on the problem you could use try the following to manage credit score:
Reduce Credit Card Spending or Increase the Limit: A high credit utilization ratio can cause the credit score to be affected negatively. High credit utilization can be dealt by either controlling your credit card spending or increasing the credit card limit. Credit cards provide a lot of convenience but if not used responsibly, the user can end up spending more than intended during the course of the billing cycle. Resist the temptation of impulse shopping or spending more than you can pay at the end of the month. If you are not splurging and are able to pay your monthly bills every month but still the credit utilization is high then consider increasing the credit limit or getting another card. However opt for a higher limit or a new card only if you are able to pay off the current outstanding comfortably. A bigger limit will not solve the problem if the problem is out of control spending; then you need to work on budgeting your expenditure.
Do Not Default on Payments: Being regular in paying the dues whether for credit cards or loans cannot be a one of instance, this has to be a regular practice. Repayment history is the most important contributor when it comes to making or breaking the credit score. So any time you are looking at improving the credit score this simple step could go a long in way in helping you. Always pay on time; in case due to some reason there is an expected delay in making payments, talk to the bank to not present the EMI cheque or pay the credit card minimum amount due. Paying the minimum amount will attract charges but there will be no reporting to CIBIL.
Communicate with the Involved Agencies: If the credit score is low due to non-payment of dues or a pending NOC then it makes sense to communicate with the right agency to reach a solution. Not taking a NOC for a loan that has been repaid in full can be the cause for a low credit score. The time and effort taken to get this NOC is worth the result. For unpaid old dues get in touch with the lender and work out a solution, lenders are usually willing to meet the defaulting borrowers halfway so it makes sense to communicate and negotiate with them. If your name appears in the CIBIL defaulters list due to some oversight or error then also you need to get in touch with the concerned lender to try and resolve the issue and get the mistake rectified. Removal of any such issue from the credit report can have an immediate positive effect on your score.
Old Debt is better than New Debt: Whether it is a loan or a credit card, the longer the period of credit history is the better it is for your credit rating. Do not foreclose a loan and if you need to surrender a card better surrender the newer one. Longer the debt trail the better it is for the overall credit rating.
Just like there is no single reason for a low credit score there is no single way to improve it. Depending on the situation and the cause the right option or combination of options may be chosen to work on improving the CIBIL score.