Considering consumer spending across India amounting to nearly INR 22 trillion by the end of the first quarter of 2021, it is evident that Indians have a penchant for purchasing. With newer and innovative payment systems, Eg: Payment Programs in Fintech: Buy Now, Pay Later, consumers are being made well-versed with the concept and different options of a credit system. With several credit options, credit purchases seem to be on an all-time high. As a repercussion of multiple borrowings, individuals may falter in repayment which affects Credit Score, commonly referred to as CIBIL score.
What is CIBIL?
A Credit Information Bureau India Limited (CIBIL) score is a three-digit numeric summary of an individual’s credit history found in the CIBIL Report (alternatively known as Credit Information Report- CIR). Based on past credit behaviour, borrowing and repayment habits, a score is generated to develop an individual’s financial persona.
While the score can range anywhere between 300 to 900, having a score above 750 helps in getting services from various Financial Institutions.
Ways to Improve your CIBIL score
1. The Due Date
| Do | Set reminders before the due date hits to repay the basic amount, approximately 5%, to avoid penalties & late payment charges |
| Don’t | Default on your EMIs to ensure a favourable credit score |
2. Elongate Credit History
| Do | Maintain historical data, records and accounts that have a timeline of your credit history |
| Don’t | Discontinue old accounts with a credit history |
3. A Customized Limit
| Do | Increase your credit limit as per your monthly expenditure. Your credit utilization ratio also impacts your credit score |
| Don’t | Avoid continually reaching your credit limit |
4. Forms of Credit
| Do | Consider widening your portfolio with different types of loans & tenure range to ensure better interest rates while borrowing |
| Don’t | Overlap your loans to the point of defaulting |
5. Credit Report Check
| Do | Review your credit report at intervals to mark or notify discrepancies that may affect your score adversely |
| Don’t | Delay filing for errors or disputes with your credit bureau |
The Bonus Advice- If you have co-signed, guaranteed or opened a joint account, remember that you are held equally liable for missed payments, defaults or negligence in payment, thereby, impacting your credit score.
Therefore, while the credit system has enabled many of us to indulge in extra expenses, it is imperative one imbibes healthy credit monitoring habits.