Top Reasons for Low CIBIL Score & How to Improve it

The CIBIL score is one of the most important factors in obtaining the best credit cards, faster loan approval, and the ability to negotiate interest rates. The higher the CIBIL score, the better the chances of obtaining all of these benefits. It is important to note that an applicant with a low CIBIL score may be approved for a loan/credit card, but he/she will have to pay a higher interest rate for the loan/credit card.

To avoid situations involving higher interest rates on loans or difficulties in the loan/credit approval process, it is necessary to first understand the reasons for a low CIBIL score and then take steps to improve it.

What is a Good CIBIL Score?

A CIBIL score is a three-digit numerical summary that defines a borrower’s creditworthiness. It is based on the borrower’s previous credit history, income, financial well-being, and other factors.

• The CIBIL score ranges from 300 and 900
• A CIBIL score of 750 to 900 is considered excellent, while less than 650 is considered fair
• A high CIBIL score offers benefits such as lower loan interest rates, a higher credit utilisation ratio, bargaining power, and so on

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What are the Reasons behind a Low CIBIL Score?

Listed below are a few of the reasons behind low CIBIL score that can hamper a major number of loan or credit based opportunities-

• Repayment history is poor
• Higher use of credit utilization ratio. Spending more than 30% of your total credit limit gives a negative impact on the credit score.
• Multiple hard inquiries
• CIBIL report contains numerous errors and comments.
• Credit mix mismanagement (secured and unsecured loans)

How to Improve CIBIL Score?

Just like there are numerous factors that affect the CIBIL score, there are multiple ways to improve the CIBIL score too. Listed below are some of the ways to improve the score-

• Make timely payments of credit dues and loan EMIs
• Make sure to use a credit utilisation ratio of 30%.
• Maintain an appropriate mix of secured and unsecured loans.
• Examine the CIBIL report twice a year.
• Resolve any issues or comments in the CIBIL report as soon as possible.
• Keep track of how much credit you use and pay it off as soon as possible.
• Do not close any old credit card accounts

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FAQs

How do you achieve a CIBIL score of 900?

To achieve a CIBIL score of 900, you should always pay your debts on time, avoid making hard inquiries, avoid using a credit utilisation ratio of more than 30%, resolve credit report comments, and maintain an appropriate balance of secured and unsecured loans.

Is the CIBIL score the only factor that determines a user’s ability to obtain new credit?

A CIBIL score is not the only factor that influences a person’s ability to obtain new credit. Users’ age, income, employment, loan amount, and other factors all play a role in loan or credit card application approval.

What is the difference between hard inquiries and soft inquiries?

Hard inquiries are any inquiries made by a lender when a user applies for a loan or credit card. Soft inquiries are those made by users to check their credit reports in order to review or monitor their credit behaviour.

Priyanka Juyal

Priyanka Juyal- a Writer with a curious mind & vision to create the best out of words. Other times, see her playing the guitar, sketching or narrating folk tales!