10 Reasons Why You Have A Low CIBIL Score

The three-digit CIBIL score is a reflection of your creditworthiness. All financial institutions check borrowers’ credit scores before approving a loan. For individuals who are wondering how to increase their CIBIL scores, this article discusses certain measures they can take to improve their credit profile. 

10 Reasons Why You May Have a Low Credit Score

If you have often wondered why my CIBIL score is low, it may be because you are NOT following the below-mentioned factors:

1. Pay Credit Card Bills on Time

One of the main reasons for CIBIL score drop may be non-payment/delayed payment of credit card bills. Paying off outstanding credit card bills on time can help individuals to increase their credit scores.

By paying only the minimum amount due mentioned in the credit card statement, one can avoid paying late payment charges imposed by lenders. That said, this leads to an increased debt burden as the interest and taxes get added to the bill in the following cycle. 

2. Monitor Credit Report 

One must make sure to check his/her credit report from time to time to spot errors and inconsistencies. It is mandatory for credit bureaus to offer one free credit report every year to individuals. There’s a possibility that the report might have inaccurate information.

Such errors can impact your credit score significantly. One must make sure to report these errors immediately to get them rectified as soon as possible. 

3. Limit Credit Utilisation 

A high credit utilisation rate negatively impacts your CIBIL score. This is because lenders believe that the borrower is utilising most of the credit to overcome financial stress.

Borrowers should utilise less than 30% of their credit card limit to avoid any damage to their credit profile. Furthermore, one should also limit the number of loan applications as it can affect his/her credit score. 

4. Increase Your Credit Card Limit

For individuals wondering how to increase CIBIL score to 800, increasing the credit limit is a wise move. This will help borrowers to decrease their credit utilisation ratio while boosting their CIBIL score.

Note that if individuals utilise their full credit limit or more than a specific limit, the credit utilisation ratio surges significantly, and the risk of default increases as well. 

5. Maintain a Prudent Credit Mix

For individuals, it always helps to have a healthy mix of secured loans (home loans, loans against property, etc.) and unsecured loans (personal loans). Borrowers, who have a higher number of secured loans, are more preferred by lenders. The credit bureaus give them a favourable credit rating as well. 

In case borrowers have a higher number of personal loans, they should consider prepaying the loans to make sure that they have a healthy credit mix.

You may also want to know How to Get a Personal Loan for a Low CIBIL Score?

6. Opt for a Longer Repayment Tenure

When availing of any form of financial assistance, borrowers must make sure to opt for longer loan tenure. This will help them to repay the loan without any pressure as the EMIs will be low. This way, they can avoid defaulting on the loan repayment and improve their credit score at the same time. 

7. Avoid Having Too Many Credit Cards

Individuals must be judicious when applying for new credit cards. Although credit cards can be very useful if you’re looking to avail of any loan, possessing too many credit cards and utilising them for high-value purchases can backfire.

Keep in mind that applying for credit cards from multiple financial institutions can impact your credit score significantly. 

8. Rethink the Idea of Being a Joint Account Holder

One should avoid opening a joint account; it is also ideal to refrain from becoming a guarantor of any kind of financial assistance. This is because if the other party defaults on the loan repayment, it will impact the guarantor’s credit profile. 

9. Avoid Giving Any Hint of Risk

If individuals are looking to increase their credit score from 750 to 800, it is vital to avoid giving a hint of financial stress.

Credit scoring models have been designed in a special way to identify early signs indicating financial pressure. Paying an amount lower than the overall amount due is one of the common signals of financial stress. 

10. Keep Your Old Debt in the Credit Report

A borrower’s credit score is a reflection of his credit repayment track record. Lenders approve loans based on that.

Accordingly, keeping records of an existing loan account that doesn’t have any default is a wise move for individuals who are wondering how to improve their credit score in 30 days. After all, when the repayment of a loan is complete within the stipulated timeframe, it has a positive impact on a borrower’s creditworthiness. 

Read more about why CIBIL Score is important