Why You May Have a Low CIBIL Score & How to Better It! 

August 10, 2022

Most lenders and card issuers review the applicant’s CIBIL score when a loan or credit card application is approved. Transunion CIBIL, one of the four Indian credit bureaus that produce your credit score, is the source of this CIBIL score. A low CIBIL score could hamper your loan or credit card application process.

An application for a credit card or loan is often approved with a CIBIL score of at least 750. If your score is below 750, getting credit will be difficult for you. Even if your application is accepted, you can expect higher interest rates. Additionally, it is quite unlikely that any bank or NBFC will grant you a loan or approve your application for a credit card if your CIBIL score is below 650.

What is a CIBIL Score, you ask? It is a three-digit numerical summary of your credit history. The CIBIL Report’s credit history is used to calculate the score (also known as the CIR, i.e., Credit Information Report). A person’s credit payment history over time, spanning loan types and credit institutions, is represented by their CIR.

Likely, most lenders or credit card companies would not approve your credit application if you’ve used caution to the wind and have not handled your credit responsibly in the past, resulting in a low credit score and creditworthiness. However, you can use some best practices to raise your CIBIL score if you know the causes. Continue reading to learn more about these factors and the best ways to boost your CIBIL score.

If the question of why my CIBIL score decreases, keeps you awake at night, and your low CIBIL score makes you anxious, you should probably work your way towards rectifying it. The first step toward fixing your low CIBIL score is to identify the reasons behind your low CIBIL score. Let us explore it in more detail.

Reasons for Your Poor CIBIL Score

There is a likelihood that, whether intentionally or unintentionally, you have engaged in some or all of the following negative habits for you to ponder on why CIBIL score is low :

Unsatisfactory Payment History

  • One of the most important things determining your CIBIL score is your payment history. Your score will drop if you have in the past made EMI/credit card payments late or not at all.
  • Your credit score will be significantly lowered if you have a default on your record.
  • A small number of unpaid dues for a long time can considerably damage your credit score.

Multiple Credit Applications Made at the Same Time

  • The quantity of hard inquiries rises when applicants submit applications for new loans and credit cards with various lenders in a short time.
  • Your CIBIL credit report will reflect all of these aggressive inquiries, which identify you as a borrower who is “credit hungry” and possibly more likely to default. Your CIBIL score will probably suffer as a result.
  • Your CIBIL score dramatically drops if your credit application is denied.

Your CIBIL Report Contains Mistakes

  • Your CIBIL score may be negatively impacted by mistakes in your CIBIL report, such as an inaccurate statement of repayment default, inaccurate reporting of active loans and credit cards, etc.
  • These could be mistakes by banks or NBFCs, or they could result from illicit activity like identity theft.
  • Ideally, you should review your credit report regularly and file a CIBIL dispute to get any errors fixed as soon as possible.

Regularly Having a High Credit Utilisation Rate

  • The credit utilization ratio measures how much of the total credit available under all credit products has been used.
  • A high credit usage ratio (90–100%) or a propensity to regularly max out credit cards signifies a dependence on credit that could lead to a heavy payback load.
  • You are at significant risk of default if your credit usage ratio is consistently high, lowering your CIBIL score.

Exposure to Unsecured Credit is High

  • Your creditworthiness grows if you have demonstrated your ability to manage various credit products in the past appropriately, such as credit cards, home loans, and personal loans.
  • Your CIBIL or credit score may go down if you don’t have a good variety of credit products, but the effect will probably not be huge.

How to Improve a Poor CIBIL Score

To stop pondering on why your CIBIL score has decreased and finally fix your low CIBIL score, follow the simple steps provided below to stop thinking about why your CIBIL score is low:

  • Pay Credit Card Dues and Loan EMIs on Time: Paying your credit card dues and loan EMIs promptly and in total will raise your CIBIL score because it shows that you are managing your credit responsibly. You can submit your score and keep it at a high level if you just keep doing this over time.
  • Regularly check and monitor your credit report: Check your credit report often for clerical mistakes and potentially fraudulent activity. If these mistakes are discovered and promptly fixed through the CIBIL dispute resolution process, your CIBIL score will rise.
  • Applying for new credit should only be done with caution if it is essential. Keeping the number of new applications under control can help you retain a good score and stop multiple complex queries from showing up in your report.
  • Only settle your obligations as a last resort; instead, make an effort to pay off any outstanding debts. Only decide if all other options have failed. This is because, even though a settlement may lessen your debt load, it will negatively affect your capacity to manage your finances and lower your CIBIL score.

To Sum it Up

Now that you know how to raise your CIBIL profile, use the many tactics we covered above wisely to increase your low credit score. This will make obtaining any type of credit from all kinds of financial organizations easier.

FAQs

Why is my CIBIL score important for loan sanctioning?

Banks avoid lending to individuals with lower CIBIL scores because they are seen to be less creditworthy. If the customer has a very high CIBIL score, the institution might give him a loan with little to no documentation and a cheaper interest rate.

What is a CIBIL score and what factors affect my CIBIL score?

Can CIBIL delete or change my records?

Your CIBIL records cannot be changed directly by CIBIL. Your CIBIL Score cannot be updated until the modification has been approved and supplied by the relevant credit institution.

How do you achieve a CIBIL score of 900?

The average time it takes to raise your CIBIL score is a few months. Pay your bills on time and in total if you want to get closer to 900. Maintain a healthy balance of secured and unsecured debt and abstain from using your credit card excessively.

 

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