Credit Information Bureau of India or CIBIL collects and maintains the records of every individual’s loan and credit card payment. The information is provided by the lenders to the bureau on time to time basis, and basis that they arrive at your credit score. With most popular one is the CIBIL score. For the uninitiated, the CIBIL score is a 3-digit number that determines your creditworthiness. It ranges between 300-900, and a score above 750 is considered to be a good score by the lender. However, due to some of the reasons listed below, your CIBIL score can go down. Result? Your credit card/personal loan application to banks or other financial firms such as MoneyTap, Earlysalary can get rejected or even if approved, you will end up paying a much higher rate of interest on it.
Let’s first understand the reasons why your CIBIL score could be low:
High Credit utilization ratio: For the uninitiated, the Credit utilization ratio is calculated by dividing the total credit utilized by you from the total credit limit. A high ratio indicates a higher dependence on credit which makes you a potential defaulter or who is most likely to default on loan EMI or credit card payments. This, as a result, negatively impacts your CIBIL score and can make it slightly difficult when you are applying for a loan, especially an unsecured one like a personal loan on MoneyTap.
Multiple loan applications at the same time: When you submit multiple loan applications for a new credit card or to avail of other forms of loans from Money Tap or different lenders in the same duration, hard inquiries under your name tend to increase. What’s more, these inquiries get recorded on your CIBIL credit report and show you to be a credit-hungry borrower with the potential to default on payments. As a result, your CIBIL score tends to go down. For instance, if you have applied for a personal loan via Earlysalary or any other financial firm, wait for a while for their response.
Outstanding unsecured debt: Having too much outstanding unsecured debt in the form of personal loans from Earlysalary and credit cards can negatively affect your CIBIL score. If in case of emergency you need credit to finance those needs, it is suggested to apply for a secured loan by pledging your asset instead of using your credit card. The balance between secured and unsecured loans, i.e. credit mix, ensures your CIBIL score doesn’t get affected.
Poor payment track record: If in the past you have repeatedly delayed or missed your EMI payments, your CIBIL score will decrease. As mentioned above, banks & other financial institutions provide information regarding your credit history to CIBIL regularly. If you default on your EMIs even once, it will amount to your CIBIL score taking a dip. As per the CIBIL analysis, a 30-day delinquency can reduce your score by 100 points. Your payment track record is one of the primary factors that affect your CIBIL score, and a positive CIBIL score can make sure you can easily avail loan from MoneyTap or other such instant loan apps.
Paying only the minimum amount due: A credit card minimum amount due is that portion of the principal that is outstanding every month. If you only pay this outstanding amount, the interest will continue to compound, which will only make you to fall into a debt trap. Hence, it is always advised to pay your credit card bills in full.
Error in your report: Sometimes administrative errors such as the incorrect mention of default in repayments, delayed reporting of loan status by banks, errors in active loans may also affect your CIBIL score negatively. Thus, it is suggested to check your credit report regularly, and in case you do come across such errors, then raise a CIBIL dispute to rectify it as early as possible.
Even with a low credit score, you may get approval for the new loan application, but in return, the lenders will charge you a very high-interest rate. If you are not willing to pay a higher interest rate, follow these important steps to improve your CIBIL score:
Do not exhaust your credit limit: As you must have known, credit cards come with a predefined credit limit that is the maximum amount you can spend at a particular time. To ensure your CIBIL score doesn’t get impacted negatively, you should try not to breach the maximum limit. In case you do end up exhausting your credit limit, CIBIL forms the impression that you cannot manage your debt well, which leads to a low CIBIL score.
Pay on time: This goes without saying that the payments should be made on time. But you should try not to default on your loan EMI of MoneyTap or the financial institution you have taken a loan from. A good track record of payment can greatly improve your CIBIL score.
Put a reminder: As vague as it sounds, research says it works 100 percent. You can put your EMI payments to Earlysalary on auto-debit so that you never miss out on paying a bill.
Do not apply for multiple loans with banks & financial institutions at the same time: When applying for a personal loan in India on the MoneyTap app, make sure you first clear its dues before availing of new credit. Also, the loan amount should be availed to fund your needs. If you have been rejected by the lender, then wait for a while before applying for new credit.
Improve your credit utilization ratio (CUR): The best way to improve your credit score is by maintaining a credit utilization ratio (CUR) of less than 30 per cent, which gives off the impression that you have less dependence on credit, a sign of good financial behaviour.
To be able to get a loan at a good interest rate, it is important for us borrowers to maintain a good credit report. A bad CIBIL score has many repercussions, such as a loan application getting rejected or getting the loan at a higher interest rate. If one is having problems in paying off the debt, they can talk to an Earlysalary representative or the bank they have availed the loan from and opt for a long tenor as this will bring down their monthly EMI. Hence, it is advisable to avoid the above-mentioned mistakes and follow the steps given above to maintain a healthy CIBIL score.