When you apply for any fresh credit like a Personal Loan, prospective lenders must begin by assessing your creditworthiness before they can decide whether you are eligible for a personal loan or not. Out of the many parameters that a lender may use to assess your creditworthiness for personal loans, an important one is your credit score. The Reserve Bank of India has also made it mandatory for traditional lenders to refer to the CIBIL score of an individual that is used as a barometer of his credit behaviour or how he has been handling credit thus far. A good CIBIL score not just helps access personal loan but also helps a Borrowers get lower interest rate for their personal loans.

CIBIL, India’s premiere credit bureau, assigns a score to an individual between 300 to 900 based on his credit service track record. A CIBIL score of 750 and above is considered satisfactory by banks and financial institutions. If your score is anything below this level, you may find it difficult to get a personal loan, in case of a financial emergency from a bank or financial institution. In fact, a personal loan with bad credit is almost impossible to get from traditional sources like banks or financial institutions. Nowadays, there are online Peer to Peer Lending websites like Faircent.com from where you could get a loan if your CIBIL credit score is below 750 but above 600. Still, it is important to improve your credit score before making an application for a personal loan. A higher credit score will enable you to get lower interest rates, lower EMIs, and longer tenures. Here are some tips on how to go about improving your CIBIL credit score.

Check your CIBIL report for errors

If you find that when you apply for a personal loan, your score is not so good, even though you have been handling your credit responsibly, the first thing to do is to check your CIBIL report for errors. Sometimes, errors turn out to be the biggest issue causing your credit score to be low on a CIBIL report. Comb through your report carefully and in case of any errors report them to CIBIL immediately by raising a “dispute”. A resolution of a CIBIL dispute may take anything between a few days to a month, depending upon the nature of the dispute. Once your CIBIL report is error free you may apply for the personal loan.

Check your credit card balances

If your CIBIL report is error free, it is probably your credit card outstanding balances that are pulling down your credit score. Consider paying off a chunk of your credit card debt either by liquidating other assets or by taking a bridge loan at a lower interest rate. Credit card interest rates are in the range of 24% to 36% per annum, and there are lots of alternatives to get a bridge loan at interest rates which are lower by as much as 10% to 14%. P2P loans India from Faircent.com is one such alternative where interest rates range from 12% to 28% p.a. Paying off your credit card balance partly or in full will have a positive impact on your CIBIL score. You may apply for the personal loan when such a repayment increases your CIBIL score.

Timely repayments

This is one of the most important factors that influence your credit score and will decide your creditworthiness when you are making an application for a personal loan. Therefore, make sure that you are making all the required repayments on all your credit lines on-time. The best way to go about this is to automate your repayments so that you do not miss a payment accidentally, even though you may have no intention to. If you miss your repayment, it will pull down your credit score and this may pose an obstacle when you are applying for a personal loan.

Make more than one payment on your credit card in a billing cycle

If you are already in a position where personal loan with bad credit is becoming very difficult to get, you should try to bring up your credit score, by making a down payment towards your credit card debt. It is also a good idea to make more than a single repayment on your credit card in a month as it will you keep your credit balance low and improve your credit score. Another way is to pay off your credit card debt immediately after you have used it for a major purchase, rather than waiting for the end of the billing cycle.

Keep credit utilisation low

Your CIBIL score may also be on the lower side even if you do make timely repayments. This may cause you to be baffled about why you are being told that you are not eligible for a personal loan with bad credit. This is probably because your credit utilisation or the amount of credit you use, as against the total credit made available to you, is high. In order to improve your credit score, you need to bring your credit utilisation down to 30%. The lower your credit utilisation, the greater the chance of improvement in your CIBIL Credit score.

Do not apply for fresh credit

If you are already struggling with a poor CIBIL score, do not apply for any fresh credit line till such time you have rectified your CIBIL score. Each time you apply for any new credit there is a hard inquiry on your report, which causes your CIBIL score to come down by a little bit. Also, applying for too much credit in too little a time makes you seem credit hungry to prospective lenders.

Do not close old credit card accounts

Even if you have not been using a credit card for very long, do not make the mistake of surrendering it or closing it. The age of your account makes a positive impact on your CIBIL score, so the longer you hold on to your card, the more you score on the age factor.

Check your CIBIL score and report periodically

Lastly, but not the least, make it a habit to keep a watch on your CIBIL score. Checking your CIBIL score periodically will ensure that no errors or discrepancies creep into your report and you are assured of the fact that you are projected as financially healthy to potential lenders.

Following these simple steps to improve your credit score will ensure that you get access to a personal loan at low-interest rates whenever you are in need of one.