Top Reasons for Low CIBIL Score & How to Improve it

CIBIL score- One of the most important factors behind the early loan approval, the scope of negotiation in the interest rates, hold-over-credit cards. The better the CIBIL score is, the higher will be the chances of getting all these advantages. It is important to note that an applicant with a low CIBIL score may get approved for a loan/credit card, but at a higher interest rate.

To get rid of the landing into situations of higher interest rates on loans or hindrances in the loan/credit approval process, it is necessary to first understand the reasons behind low CIBIL score and then follow steps to improve it.

What is a Good CIBIL Score?

A CIBIL score is a 3-digit numeric summary that defines the creditworthiness of the borrower. It is calculated on the basis of the borrower’s previous credit history, income, financial well being and more.

A good CIBIL score is defined as-

  • CIBIL score ranges from 300-900
  • CIBIL score between 750 and 900 is considered the best, whereas scores lower than 650 are not considered good
  • Good CIBIL score offers benefits like low interest rates on loans, higher credit utilization ratio, negotiating power, etc.
  • Low CIBIL score results in high interest rates with no negotiating power and approval for a lesser loan amount

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-

Read More: How to Apply for a Credit Card- The Complete Process
  • Bad repayment history
  • Higher use of credit utilization ratio
  • Multiple hard inquiries
  • Multiple errors/comments in CIBIL report
  • Mismanagement of credit mix (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
  • Ensure to use credit utilization ratio by 30%
  • Maintain the right mix of secured and unsecured loans
  • Check CIBIL report twice a year
  • Resolve any issue or comment in the CIBIL report at the earliest
  • Be careful of how much credit you use
  • Do not settle credit amount
  • Do not close any old credit card accounts

How to get a CIBIL score of 900?
To get a CIBIL score of 900, you should always pay the debt on time, do not make hard inquiries, do not use a credit utilization ratio of more than 30%, resolve credit report comments, create the right balance of secured and unsecured loans.
Is CIBIL score the only factor determining the user’s ability to secure new credit?
A CIBIL score is not the only factor that determines one’s ability to secure new credit. User’s age, income, employment, loan amount and others are also important factors for the approval of loan or credit card applications.
What is the difference between hard inquiries and soft inquiries?
Any inquiry made by a lender when a user applies for a loan or credit card is called hard inquiries. Soft inquiries are those that are made by users to check their credit report for reviewing or monitoring his/her credit behaviour.
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