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How to improve your CIBIL Credit score in 2013?

Rajiv Raj
www.creditvidya.com

It is the time of year when resolutions are made with infectious enthusiasm. Some remain mere resolutions while others become an integral part of your life. Those that become an integral part of your life change and bring about a positive change in the way you conduct your life. Among the many resolutions that bring about a positive change in your life, the resolution of improving your credit profile is a crucial one. While there are a few who are informed and strive towards maintaining a good score, there are many who are unaware. This majority realise the importance of having a good score credit score when banks insist on knowing their credit score and turn down their loan applications on account of low score. As a beginning to a New Year, I present to you a few steps that would help you maintain a healthy credit score. It is generally accepted that a credit score more than 750 is good and elicits assurance and trust from banks.

Here are a few steps:

Step one: Know your credit profile
Go to Credit Information Bureau of India (CIBIL) web site and pull out your credit report. Online authentication process ensures that you need not stand in the que. The moment you get the report, go through it. Check the crucial number–your credit score. Also check if there are some glitches in your credit report. Sometimes incorrect records spoil the credit score. Say a bank has not reported closure of a loan account as the borrower prepays the entire loan outstanding. If such a loan is shown as 'settled' in your report, you should approach the bank and obtain a ‘no dues certificate’ from the bank and submit it to the credit bureau. The credit report thus can be updated. If all is well, but your credit score is low, it is the time to take next step.

Step two: Switch in time…
Ensure that you pay all your loans due on time – be it credit card outstanding or an EMI on the loan. Better ask your bank for setting up an ECS mandate to collect the loan amount on the due date. This ensures that your loans are paid on time. Always maintain sufficient balance in your bank account.  Part payments would not help – they typically bring down your credit score. This is an important step towards improving your credit score.

Step three – Under one umbrella
If you have too many loan accounts better consolidate the smaller ones into a loan account. Approach the bank and give details on all these loans and you can transfer the balance outstanding. Many banks are offering new-year special loans schemes for balance transfer. You should avail of such schemes. This holds good for credit cards too. After you consolidate your loans, close credit cards with small credit limit. It is better to keep two credit cards with credit limit of Rs 2 lakh each than four credit cards with Rs 100,000 each.

Step four: Superfluous credit
You should never have too much of personal loans and credit card outstanding. It brings down the credit score. A home loan, however, won’t impact your credit score. If you have too many unsecured loans try to repay them quickly –one after another. If possible get a loan against property or loan against shares to pay off the high cost unsecured debt.

Step five - Credit limit
Never avail of entire credit limit. If you have two credit cards with credit limit of Rs 2 lakh each, and you are spending Rs 250, 000 on cards, try to spend it Rs 1.25 lakh each. If you spend Rs 2 lakh on one card and rest on the second card, it appears that you are using your credit limit on first card. This brings down your credit score. And more importantly never overspend – after all you have to repay it.

Step six – Being scrupulous
It is all simple till here. Now begins the uphill task. Do not stand as a guarantor to anybody and everybody. Be selective and in that case too, conduct due diligence on the borrower. If the borrower defaults, your credit score goes down. Many a time we get calls from banks for personal loans and credit cards—do not apply for each one of them. Too many inquiries in a short span of time are seen as a credit-hungry behaviour and brings down credit score.

Step seven – Settlements
If you have long pending disputes with banks, don’t accept a settlement. Such settled loan accounts spoil your credit score. Better sit with the bank and try to solve it amicably. Be open to disagreements and face the weaker links in the dispute.

The writer is a Co-founder & Director at  www.creditvidya.com

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