If you have been using CIBIL score to evaluate your credit risk, it’s time to take a second look. A new study from the Federal Reserve Bank of New York found that there is a “statistically significant” correlation between a high CIBIL score and an increased probability of default in the next year. This means that even though your CIBIL score might be higher than someone else, their chance of going bankrupt in the next 12 months is still greater than yours! So what should you do? Read on for 8 easy ways to improve your credit rating and get out of debt faster!
1. Pay your bills on time
One of the biggest contributors to a bad CIBIL score is a history of late payments. This can be explained by considering that CIBIL does not simply build a credit profile by using the available data, but rather uses this information for predicting how borrowers are likely to behave in future. So if you have been delinquent in the past, it is a warning sign for future delinquencies.
2. Reduce your debt burden
Based on a study of 5 million borrowers across India, a reduction in a borrower’s debt burden was found to increase her credit score which indicates that CIBIL scores respond positively to efforts made by borrowers to reduce their liabilities. This can be done by either by repayment of outstanding debt, or by making a shift from non-performing assets to performing ones.
3. Be an authorized user
Being a joint account holder or authorized user can help build a positive credit rating. This is because the responsible borrower on the other side is held accountable for all the bills which you are responsible for. As long as the responsible borrower makes his/her payments regularly, you can enjoy all the benefits of a good credit history.
4. Keep revolving balances low
A high outstanding balance on your credit card or loan account is looked upon negatively by CIBIL. This is because it indicates that borrowers have been irresponsible in borrowing and have not been able to pay their dues on time. This is another reason that one should aim for reducing their total debt burden.
5. Cash out your credit card balance regularly
If you use your credit card to make purchases, but have never carried forward the amount to your next billing cycle or have always paid off the outstanding bill using funds from an alternative source, it does not contribute to your credit history. This is because it means that you are not making regular use of available credit on your card, which can be seen as a warning signal for future behavior.
6. Don’t close old accounts
Closing old credit card or loan accounts will affect your credit score negatively because it reduces the average age of all your credit accounts. This serves as an indicator to CIBIL that you have been irresponsible in managing your past finances, and reduce the chance of being creditworthy in the future.
7. Regularly checking for a better deal
Regularly checking one’s CIBIL score can help in identifying errors or anomalies which might not otherwise be apparent over a long time. This way you can take the necessary action to remove any inaccuracies or unverifiable records from your report, which will result in an improved CIBIL score.
8. Look beyond CIBIL
While it is important to improve your CIBIL score, one should not ignore other credit information databases available to them. These include records of loan accounts held by banks, housing finance institutions and non-banking financial companies.
Thus CIBIL score is an important tool to build or maintain a credible credit profile. By knowing what influences your DQ (Diligence Quotient), you can better manage your finances and improve your overall CIBIL score!