How To Improve Your Credit Score?

4 minsJune 11, 2017

Given the rise in lifestyle expenses and people’s aspirations, using a credit card for shopping or availing a personal loan for travel is normal practice. Then as per one’s life stage people also borrow home loans for an asset and car loans. In order to approve the loan and decide the amount banks check your credit scores and credit history, which are provided by credit bureaus.

Credit information bureaus such as CIBIL, Experian, Equifax, CRIF HighMark monitor a borrower’s credit behaviour and provide for a credit score to denote the credit worthiness.

That is, how likely are you to repay a loan. The more credit worthy you are (higher your credit score), the easier your application process for a loan is likely to be.

Factors taken into account while assigning a credit score :

• Payment history
• Credit usage
• Duration of the account
• Type of loans undertaken (consumer loans, home loans etc.)
• Number of enquiries to avail credit / loans

Based on the above factors, you are assigned a credit score ranging between 300 and 900. The Higher this score, the better is your credit worthiness. To put it simply you’re considered to be a better borrower as you probably make payments on time. The lenders that may advance loans to you face a lower risk of you defaulting.

However if your credit score is low:

A low credit score, exposes lenders to a high risk of default. Thus it is important to maintain a healthy credit score. Refrain from opting for too many loans that may, jeopardise your long-term financial wellbeing and pull you into a debt-trap.

Maintaining a good credit score, improves your chances of availing loans at a reasonable rates and fees. The Reserve Bank of India (RBI) has suggested banks to use credit scores to price loans optimally. So, if your credit behaviour is good, you will be incentivised.
But while your credit score might be the basis for banks to take a call on your request for cheaper loan; banks may consider the following as well….

• Factors such as your income and occupation may be helpful to banks in determining the level of risk they might be exposed to.
• In case you have a Savings Bank Account with the same bank; it may try to analyse your saving account history as well.
• Some banks may even demand your income-tax returns (ITR) of the past few years
  When combined, all these aspects may help banks get a fair idea about your financial health and credit behaviour.

Currently, organizations like CIBIL offer individuals one free report per year, to find their credit scores. The intent is to help create awareness among borrowers about their creditworthiness so that corrective measures can be taken to improve the credit behaviour.

Here is how to get your credit score for free:

STEP 1: Visit https://www.cibil.com/

• Scroll down the Homepage to the link Stating – “click here to get your Free Annual CIBIL score and annual report”.

STEP 2: Register on "Get Your Free Annual CIBIL Score And Report Online"

• In the free online order form, you will need to fill in your personal details such as name, date of birth, PAN details, etc. Please fill it carefully. Ensure that you submit the correct mailing address and details.

STEP 3: On the Next Page, Click On “No Thanks” Option

• Once you fill in all the details a pop-up suggesting subscription to CIBIL will appear. The CIBIL subscription of course offers more benefits as compared to a free copy, but in case you’re unwilling to pay, just click on the “no thanks” option and proceed.

STEP 4: A Mail Will Be Sent To Your Registered Email Id.

• Once all your details are submitted, you will receive an OTP via SMS containing a link to the “mycibil” login page and a one-time password. An email will also be sent to your registered email id, with a subject line such as “CIBIL – Access myCIBIL for your CIBIL report”. The mail carries the link to the “mycibil” login page and a one-time password too.

STEP 5: Use the Password and View Your Report

• Once you are on the “mycibil” login page, type in your registered email id and one-time password, confirm the captcha code, accept the terms and conditions, and click on submit to view your credit score and report online.
• This report contains your personal information, along with information used to gauge your credit rating such as, past payment history, overdue amounts, number of inquiries made by different lenders etc. It will also give you a final score ranging between 300 and 900. The Higher this score, the better is your credit worthiness. A score of 750 and above is considered good.
• Being an online report, you will be unable to download or save this report. However, you can print it and keep it with you for future reference. You can even revisit your CIBIL score and the ‘Free’ report by logging in to your CIBIL account in the future.

How to Improve Your Credit Score?

If your credit score is low, here’s how you can improve it:

• Pay your EMIs on time for all kinds of loans
• Clear all your past overdues at the earliest
• Use your credit cards in moderation – set a monthly limit for yourself
• Pay your credit card bills on time, and ensure that the outstanding amount is paid in full to avoid a credit card debt trap
• Avoid withdrawing cash using a credit card
• Avoid holding too many credit cards or apply for multiple loans unless absolutely necessary
• Once all the loan closure formalities towards are completed towards your loan account(s), do not forget to enquire with your lender as to whether they have informed the same to credit bureaus.
• Do not forget to obtain a closure letter or No Due Certificate (NDC), statement of account(s), and original documents submitted, from your lender during the closure of your Loan.
  
  All these would act as evidence for you and help you elevate your credit score in future.
  Also if the lender has not intimated the credit bureau about the closure of your loan account, do it by yourself (by writing to them and submitting the requisite documents as proof).
  In case you come across your credit report and find that your credit score is low, not due to past indiscipline, but due to an error on the part of the lending institution or on the part of the credit bureau, you should immediately notify both – the institution as well as the credit bureau / agency.

What if you are unable to fix your Credit Score by yourself?

• Well, there are a host of credit counselling organisations helping those in a debt trap. If you are in a situation, don’t shy away from seeking services of such an organisation.
• Don’t worry about the fees. These agencies typically being non-profit organizations, charge minimal fees. They may help you with a debt management plan and even negotiate with the lender on your behalf, to try and get you a lower rate of interest to repay your outstanding debt.
• So you can contact a credit counselling agency you deem fit to help you out for both situations i.e. correcting an error or getting out of a debt trap. Simply knowing that you are not alone in your struggle of repayment of debt, will give you some peace of mind.

Conclusive points…

• While you may indulge in credit / debt, overdoing it can be hazardous to your wealth.
• It benefits to take calculated credit to help build wealth and meet aspirations of life. But ensure that you don’t get into a habit which can lead you to a debt storm.
• Stretch within your means, and do not take long leap which can jeopardise the financial well-being of your family and land you into a debt trap.
• To make sure you don't take more debt than you can handle, have a financial plan in place. One of the many benefits of a financial plan is that it lays the foundation for financial prudence and will show you how your cash flows are structured year on year, thereby helping you know how much EMI you can afford to pay in the coming years. You can use our EMI Calculator for the same
• Remember: if you are a safe borrower, you would score well on your credit worthiness.
  So, before the bank or the lender surprises you with a negative feedback on your credit score, it is recommended to keep a regular track of it and maintain a healthy credit score.
  
  The Reserve Bank of India (RBI) oversees credit bureaus including CIBIL, and all of them are governed by the Credit Information Companies (Regulation) Act, 2005.
  
  To help plan your Credit transactions use the Axis Bank’s Financial Calculators

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.