How To Clean Up a Low CIBIL Score

CIBIL or Credit Information Bureau (India) Limited is India’s foremost credit bureau. Financial institutions send monthly records of everyone’s credit repayments to CIBIL. Based on these records, CIBIL prepares a Credit Information Report (CIR). It also assigns a credit score to every individual.

This credit score (or CIBIL score) is vital. It shows the individual’s creditworthiness. Creditworthiness is an individual’s ability and willingness to repay outstanding debt. 

A good credit score is a key to getting further credit from financial institutions. This could be in the form of loans or credit cards, for example. A good CIBIL score ranges from 750 to 900.

What if you have a low CIBIL score?

A low CIBIL score is one that ranges from 350 to 550. Such a score can have negative financial consequences for you. Here is a quick sampling of what you can expect:

• Rejection of loan and credit card applications: A low CIBIL score shows poor repayment ability. It may also show that you have heavy outstanding debt. So, financial institutions may reject your credit applications. 
• Higher interest rates on loans and credit cards: Financial institutions may accept your loan or credit card applications. But there may be a caveat—they will charge you higher interest rates. Lenders do this to protect themselves. A borrower with a low CIBIL score poses an inherent financial risk to them.
• Rejection of employment applications: Some employers run a background check on the financial history of potential employees. A low CIBIL score will ring a warning bell to those companies. You could lose a plum position as a result.

Improving a low CIBIL score

A low CIBIL score does not have to be a permanent problem. There are ways to clean up your score. Here are some tips to help:

• Check your credit report: Go through your credit report to ensure there are no mistakes. Check your credit report every six months. If there are any faulty entries, approach your lender or CIBIL to correct them.
• Pay your bills on time: This one seems simple but everyone misses a bill payment from time to time. Set up reminders to help you with this.
• The debt correction method: Do you have multiple debts to pay? Maybe you have more than one loan and some credit card debt. Here is a way to simplify your debt repayment process:

1. List out all your outstanding debt. Arrange the debts in order of most expensive to least expensive. 
2. Pay off the highest debt first. Cut corners if you must. Just focus on getting rid of your most costly debt.
3. Pay off the next highest debt. Do this once you have repaid the highest debt on your list. Then move on to the next highest debt. Continue doing this until you clear all your outstanding debt.

• Avoid applying for loans: Do not take any loans until you clear most of your current debt. A lender might reject your loan application if your loan burden is high. Such a rejection will have a further negative impact on your CIBIL score.
• Avoid taking new credit cards: Do not accept a new credit card until you clear your debts. Multiple credit cards can be an indicator of a high debt burden. 
• Pay the minimum amount due on your credit cards: Even while you tackle the rest of your debt, continue to make your credit card payments. Do not neglect this. If possible, pay off more than the minimum amount. 
• Reduce your dependency on credit cards: This is one way to maintain your financial independence and reduce debt. Try to stop using your credit cards for a few months. Remember, credit cards charge very high interest. This will only add to your financial burden. 
• Do not cancel old credit cards: Cancelling old credit cards might seem like a way to improve your CIBIL score. But this is not the case. Rather than cancel old credit cards, aim to use them infrequently.

Conclusion

Cleaning up a low CIBIL score will not happen overnight. It takes time, patience, and financial planning. This is why experts recommend that you improve your CIBIL before applying for a personal loan. 

There are so many easy ways available to Improve your CIBIL Score and Once you improve your CIBIL score, work on maintaining it. You can do this by following the best financial practices.