CIBIL: Improving your credit score

Typically, we procrastinate checking our credit scores until we are actually in front of the loan officer. The assumption that a steady salary credit, good account balance and no loans translate into good credit history, which may not be entirely true. Furthermore checking the score after we have made a major expense decision like home, car, credit card, marriage, personal, medical emergency etc. exposes us to the risk of loan processing getting delayed or the terms (rates) being unfavorable.

Step 1: log into free Cibil credit score website if you are from India.

Step 2: If your score is abnormally low then it might be better to get a more comprehensive report. Follow up on adverse entries and check for clerical data entry errors. If your credit card account was overdue by a couple of weeks, once in a blue moon, then such entries can be mitigated if you talk to your bank and explain to them the true reason. Even for genuine negative entries, try to talk to the bank to restructure or settle so that the report is not glaringly red.

Step 3: Have a discipline and catch up on your financial obligations. If you are unable to pay your emi due to increase in interest rate, talk to the bank and get the loan tenure extended. Remember taking this step when your loan is still in good standing gives you an advantage to negotiate.

Step 4: There are no shortcuts to sound financial habits. Have a budget, plan your expenses and pay down a debt. A friend of mine missed a payment because he wanted to invest in LIC. One needs to apply common sense, there is no merit is defaulting (delaying in his context) and risking penalty charges or rise in interest rates for a discretionary planned expense.

Step 5:  Remember credit score history does not build up or improve over night. Some people take 2 years. So be patient, consistent and plan your finances. A good score will not only able to pay for your dreams but will also help you negotiate better rates to make it more affordable.

It is counter intuitive, but having no credit obligations is actually bad for your credit score. CIBIL uses past data to make a judgement on not only your ability to pay but also your willingness to honor the obligations. Hence having a small loan or a credit card that you are keeping in good standing will be good for you. Ultimately, the goal of a good credit score is to be able to pay for the lifestyle when you want it. So don’t be averse to debt, just be mindful of the scale of gearing & your capacity to sustain it.

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