What is a CIBIL Score and Why 750+?
Your CIBIL score is a three-digit number, ranging from 300 to 900, that summarises your credit history. It’s a measure of your creditworthiness used by banks and lenders. A score of 750 or higher is considered excellent and signals to lenders that you are
a responsible borrower. This often leads to quicker loan approvals, lower interest rates, and higher credit limits, giving you a significant advantage in your financial journey. Some employers in the financial sector even use it as part of background checks.
The Golden Rule: Always Pay on Time
The single most important factor influencing your CIBIL score is your payment history, accounting for about 35% of the total score. For a salaried professional, this means ensuring all Equated Monthly Instalments (EMIs) for loans and credit card bills are paid in full and on time. Even a single delayed payment can negatively impact your score and remain on your report for years. A simple way to manage this is by setting up automatic payments or standing instructions for all your recurring dues. Paying only the minimum amount on your credit card is a common mistake; it leads to high interest charges and can signal financial instability to lenders.
Master Your Credit Utilisation Ratio
Your Credit Utilisation Ratio (CUR) is the percentage of your available credit limit that you use. It's the second most crucial factor, making up around 30% of your score. For example, if you have a total credit limit of ₹1 lakh across all your cards and your outstanding balance is ₹40,000, your CUR is 40%. Experts recommend keeping this ratio below 30%. A consistently high CUR can suggest that you are over-reliant on credit, making you appear as a higher-risk borrower. For young professionals who might be tempted to overuse their first credit card, this is a critical discipline to learn.
Build a Healthy and Diverse Credit Mix
Lenders like to see that you can responsibly manage different types of credit. This is known as your credit mix. A healthy mix includes both secured loans (like a car or home loan, which are backed by an asset) and unsecured loans (like personal loans and credit cards). This diversity shows financial maturity. However, this doesn't mean you should apply for multiple loans just to improve your score. Each loan application triggers a 'hard inquiry' on your report, and too many in a short period can temporarily lower your score. Apply for new credit only when absolutely necessary.
Patience and Consistency: Credit History Matters
A long and positive credit history demonstrates reliability. This is why it’s often advised not to close old credit card accounts, even if you don't use them frequently. An older account contributes to the length of your credit history, which can positively impact your score. Building a good score is a marathon, not a sprint. It takes consistent, disciplined financial behaviour over several months, or even years, to build a robust credit profile. For those with no credit history, starting with a secured credit card (one taken against a fixed deposit) can be a great first step.
Monitor Your Report for Errors
Mistakes on your credit report are more common than you think and can unfairly drag down your score. These could be incorrect personal details, accounts that don't belong to you, or wrongly reported late payments. It is crucial to review your CIBIL report at least once a year. If you find any inaccuracies, you should immediately raise a dispute with the credit bureau to have them corrected. Regularly monitoring your score not only helps you catch errors but also allows you to track your progress and understand the impact of your financial habits.
