What is a CIBIL Score and Why It Matters
Your CIBIL score, a three-digit number ranging from 300 to 900, is a summary of your credit history and serves as a measure of your creditworthiness for lenders in India. It is generated by TransUnion CIBIL, one of the country's main credit bureaus. A
score of 750 or higher is generally considered excellent, opening doors to easier loan approvals, higher credit limits, and more favourable interest rates. Conversely, a low score can make it difficult to secure loans or credit cards. Payment history is the most significant factor influencing this score, which is why missed bills can cause noticeable damage.
Habit 1: Prioritise and Automate Payments
The most crucial step to fixing your credit score is to prevent the problem from happening again. Late payments are a major red flag for lenders and have a significant negative impact on your score. The simplest way to build a track record of timely payments is to make it automatic. Set up auto-debit or mandates for all your recurring payments, including loan EMIs and credit card bills. This ensures your dues are paid on time, every time, without you having to remember each due date. If auto-pay isn't an option, use calendar reminders or financial apps to alert you a few days before the deadline. Building a consistent history of on-time payments is the foundation of a healthy credit profile.
Habit 2: Reduce Your Credit Utilisation Ratio
Your Credit Utilisation Ratio (CUR) is the percentage of your available credit limit that you are currently using. For example, if you have a credit card with a ₹1,00,000 limit and a balance of ₹40,000, your CUR is 40%. A high CUR suggests to lenders that you may be overly reliant on credit, which can lower your score. A healthy habit is to consistently keep your CUR below 30%. You can do this by paying down your existing balances and avoiding maxing out your credit cards. If you have a good payment history with a particular card, you could also request a credit limit increase. A higher limit, provided your spending stays the same, will automatically lower your CUR.
Habit 3: Regularly Review Your Credit Report
You are entitled to a free credit report from each of the credit bureaus, including CIBIL, once a year. Make it a habit to pull and review your report at least annually. Check for any errors or discrepancies, such as a payment you made being incorrectly marked as late or an account that doesn't belong to you. Such inaccuracies can unfairly pull down your score. If you find a mistake, you can file a dispute directly with the credit bureau. CIBIL will then work with the concerned lender to verify and correct the information. Regularly monitoring your report not only helps catch errors but also allows you to track your progress as you work to improve your score.
Habit 4: Maintain a Healthy Credit Mix
Lenders like to see that you can responsibly manage different types of credit. A healthy credit mix includes both secured loans (like a home or auto loan, which are backed by collateral) and unsecured loans (like personal loans or credit cards). Having only one type of credit might not be enough to demonstrate your repayment capabilities. However, this does not mean you should rush out and apply for multiple new loans at once. Each application results in a 'hard enquiry' on your report, and too many in a short period can temporarily lower your score. The goal is to build a diverse portfolio of credit over time, demonstrating long-term financial discipline rather than a sudden need for funds.
