CIBIL Score: Importance, Ranges, and 5 Essential Tips to Boost Your Credit

What is a CIBIL Score?

A CIBIL score is a number that reflects how well you manage credit, such as loans or credit cards. Generated by TransUnion CIBIL, a major credit bureau in India, it helps lenders decide if they can trust you to repay a loan. The CIBIL score ranges from 300 to 900. It's like a financial report card: the higher your score, the better your chances of getting loans or credit with favourable terms

Why is the CIBIL Score Important?

For anyone in India, especially those running small businesses or looking to get a loan, a good CIBIL score is significant. Here's why:

• Loan Approval: Banks and NBFCs review your CIBIL score before approving loans. Your chances of approval increases with a higher credit score.
• Interest Rates: A higher score can help you get loans at lower interest rates. It enables you to save money in the long run.
• Credit Limit: If your score is high, you may get higher credit limits on credit cards

CIBIL Score Range and What It Means

Key Takeaway: Aiming for a CIBIL score of 750 or above is ideal for getting loans easily and at lower interest rates.

Additional Note: The CIBIL score is just one type of credit score in India. Other credit bureaus likeExperian, Equifax, and CRIF High Mark also generate credit scores based on your financial history. Each bureau may have some variations in how they calculate these scores but the main factors remain the same like your payment history, length of credit history, credit utilisation, and types of credit used.

5 important tips to improve your credit score

If you are thinking about how can I increase CIBIL score, follow these tips.

1. Keep an eye on your credit report regularly

• Check your credit report for mistakes to improve your credit score.
• Get a copy of your credit report from the CIBIL website.
• Look through it carefully for mistakes or differences.
• If you find any errors, raise them immediately with the credit bureau.
• Fixing errors can raise your credit score and make you a more reliable borrower.

1. Pay Off Debts:

• Start by paying off high-interest debts first.
• Talk to your lenders or creditors about payment plans you can handle.
• Pay at least the minimum on all debts to avoid negative marks.

3. Keeping Your Credit Utilisation Low

If you are wondering how to increase your CIBIL score quickly, you can start by keeping your credit utilisation low. Use only a small portion of your credit limit. For example, if your limit is ₹20,000, try to use less than ₹6,000. If you regularly check your balances it will help you manage your credit prudently and improve your score over time.

Tips to keep your credit usage low:

• Aim for Below 30%: Keep your credit card balances under 30 to 40% of your total credit limit. Higher usage can signal financial stress to lenders and hurt your credit score.
• Spread Out Your Spending: If possible, distribute your spending across multiple credit cards. This helps keep each card’s utilisation low.
• Request increase in your Credit limit: Consider asking for more credit limit to lower your credit utilisation ratio. This can help improve how lenders see your credit health.

4. Avoid Opening Multiple New Credit Accounts

• Limit New Accounts: Opening too many new credit accounts can lower your CIBIL score and make lenders view you as a higher financial risk.
• Hard Inquiries: Each time you apply for new credit, a 'hard inquiry' is recorded on your report, causing a temporary dip in your credit score.
• Focus on Existing Credit: Instead of opening new accounts, focus on managing your current credit responsibly.
• Build Credit Carefully: Work on building a strong payment history and keeping your credit utilisation low. This is one way to improve your credit score effectively.
• Quality Over Quantity: It's better to have a few well-managed accounts than many new ones when trying to improve your credit score.

By focusing on these practices, you can naturally work on how to improve your credit score over time.

5. Regularly Monitor Your CIBIL Score

• Check Your Credit Report Often: Regularly review your credit report to stay on top of your credit score.
• Catch Errors Early: If you spot any mistakes, contact the credit bureau immediately to correct them.
• Track Your Progress: Monitoring your score helps you see where you stand and make adjustments to your spending habits if needed.

If you're finding it tough to improve your CIBIL score, think about getting help from a financial advisor. They can provide strategies that fit your situation. It’s okay to ask for help. Professional advice can improve your credit quickly and help you reach your financial goals.

Boosting credit score is key to get better business loans in India and that too on time. Credit score improvement can lead to lower loan rates, more approvals, and greater financial stability. Remember, good financial habits and patience will pay off in the long run