Mistakes That Can Negatively Impact Your CIBIL Score
The CIBIL score is a critical factor that lenders consider during loan applications. You can face severe consequences if you have a low score on your credit report. It may be because some of the mistakes are easily avoidable if you are aware of them.
Keep reading to learn about some of the common mistakes, their impact, and how you can rectify them to increase your CIBIL score.
Mistakes That Can negatively impact CIBIL score
Following are some of the common mistakes that individuals tend to make that hurt their CIBIL score:
- Missing out on monthly instalments
If you miss out on or delay the payment of monthly instalments of a loan, credit rating agencies take that into account while calculating your CIBIL score. It is so because delay in EMI payments projects you as a poor financial planner. Additionally, it can also indicate financial constraints. As a result, CIBIL regards this as critical information that creditors should be aware of before approving your loan applications in the future.
- Applying for loans frequently
If you apply for loans frequently, the credit bureau sees you as someone unable to plan their finances strategically. They will deduce that you always run short of money due to poor budget planning. In light of the likelihood that you won’t be able to make your monthly instalment payments on time, they will thus award you a lower score.
- Exceeding credit limit
If you tend to exceed your credit limit, the credit bureaus keep a note of it and lower your credit score accordingly. It shows a tendency to overspend, which might cause a loan payback delay.
- Significant errors in the CIBIL report
There may be errors on your credit report that can significantly reduce your CIBIL score. Some of these include names, addresses, account number errors or other information found in a credit report. If you do not point them out on time, the officials will consider the incorrect data during the score calculation. It would, in turn, negatively impact your CIBIL score.
- Delay in credit repayment
Loan repayment history is one of the major determining factors of the CIBIL score. If you continually delay paying the monthly instalment, the officials will keep a record of that and assign you a low CIBIL score accordingly. The officials will infer that you have poor money management skills, due to which you are unable to plan a sound budget and pay EMIs promptly. To pass this information on to your future lenders, they will assign you a lower score.
- Applying for multiple loans
It puts additional pressure on your finances if you apply for multiple loans at the same time. Hence, there are chances that you will be unable to pay the EMIs of all the loans simultaneously. Therefore, credit bureaus will assign a lower score if they find out that you have applied for multiple credit lines at the same time.
- Not having the right mix of different types of loans
Your CIBIL score can be adversely affected if you always apply for either a secured loan or an unsecured loan when in urgent need of funds. It is because officials are unable to trust your money management skills due to your inexperience with different kinds of loans. They consider this as a significant shortcoming and indicate the same with a low CIBIL score.
- Closing old loan accounts
If you have a good loan repayment history, you must not close your old credit accounts. If you close them, the officials will not include that in your credit report, even if you had a good repayment record in all of them. Thus, they will end up assigning a lower score compared to the one that they would have assigned if they had considered your old accounts with a good loan repayment history.
- Applying for multiple credit cards
If you apply for multiple credit cards, it projects your overspending habit. The officials can deduce that you do not spend your money strategically and end up facing a money crunch. It generates considerable doubt about your loan repayment ability. Hence, they reflect the same through a low CIBIL score on your credit report.
- Foreclosing a loan
You might be under the impression that foreclosing a loan is beneficial and will improve your CIBIL score. However, this is not the case. Your CIBIL score will be negatively affected by foreclosing on a loan. It is so because foreclosing on a loan indicates that you are impatient and cannot plan your finances well enough to consistently pay the monthly instalments.
A CIBIL score is taken into consideration during several situations. Hence, these mistakes can lead to severe consequences.
Also Read: Why You Have a Low CIBIL Score
Consequences of a Poor CIBIL Score
Below are some of the consequences that you might have to face because of a poor CIBIL score:
- Higher interest rates charged
If your CIBIL score is low, financial institutions will approve a loan at a higher interest rate. It is because they understand that you have a poor credit history and, hence, do not want to trust you with a longer repayment tenure. Therefore, despite your preference or request, they often have a shorter term and a higher interest rate.
- Rejection of loan application
Every financial institution has a set of eligibility criteria that potential borrowers must fulfil to qualify for loan approval. One of the most important among them is the CIBIL score. If your CIBIL score is lower than the one specified in the qualifying requirements, the financial institution is likely to reject your loan application.
- Higher premiums for insurance
Often, insurance companies consider your CIBIL score when deciding the premiums of your insurance plan. If they find it low, there are chances that they will ask you to pay a higher premium. It is due to the fact that they know you will agree to a high premium only if you are serious about the insurance policy.
- Difficulty in getting a job
Some companies conduct a thorough check on the financial status of the individual they are hiring. During their inspection, if they notice a lower CIBIL score, they can view it negatively. They think that financial issues can negatively impact the performance of an individual.
However, there are several steps that you can take to increase your CIBIL score.
Ways to Increase Your CIBIL Score
Following are some ways in which you can increase your CIBIL score:
- Pay monthly instalments on time
Try to adhere strictly to the EMI dates every month. You may minimise unnecessary delays by setting an instalment payment reminder for the forthcoming payment.
- Evaluate your credit report regularly
You should check your credit reports at regular intervals, such as once a month or so. It aids in identifying any errors and brings them to the attention of higher officials immediately. In this way, you can eliminate errors and increase your score significantly.
- Refrain from applying for loans multiple times
You should apply for a loan only if you are in urgent need of funds and have no other options. Also, if it gets rejected for any reason, you must not immediately apply a second time. You should first understand the reason for loan rejection and rectify the same to get approval the second time.
- Increase credit card limit
If you notice that you frequently exceed your card limit, you can increase it. Thus, you can maintain your lifestyle with ease within the given card limit. It will project you as a strategic financial planner and subsequently increase your CIBIL score.
- Maintain the record of your old debts
It is essential to maintain those loan repayment records that you have paid diligently. It ensures that they are taken into consideration while calculating the CIBIL score.
If you take small yet impactful steps, you can increase your CIBIL score by a significant margin. However, the first step is to evaluate your credit report and identify the mistakes that affect it. You should note that your credit score gradually increases over time. So, it would be beneficial to continue your efforts without expecting immediate results.
Frequently Asked Questions (FAQs)
What do different CIBIL score ranges imply?
The meaning of different CIBIL score ranges is as follows:
750 – 900: Excellent
650 – 749: Good
500 – 649: Average
300 – 499: Poor
Can I get a loan with a low CIBIL score?
Yes, you can get a loan with a low credit score. In such instances, you must choose a secured loan, provide income verification, obtain a guarantor, or apply for a combined loan.
How to check the CIBIL score?
You can check your CIBIL score by following the steps below:
Step 1: Visit the official website of a financial institution.
Step 2: Navigate to the page from where you can check your score.
Step 3: Enter all the essential details needed.
Step 4: Click on ‘submit’ to get your CIBIL score instantly for free.