A CIBIL score is a 3-digit numeric representation of your creditworthiness and credit behaviour. Based on this value, banks and other financial institutions assess your credibility. It also helps decide your loan tenure, interest rates and other loan terms.
As such, it is crucial to maintain a healthy credit history. Moreover, lenders have set credit score requirements for various loan types. For instance, the ideal CIBIL score for a car loan or most loan types is a score of 750 or higher.
However, some lenders may also give loan approval if your score is 700 or above. That said, improving your CIBIL score requires discipline and regular monitoring. You can check CIBIL score online from the official CIBIL portal or at any lender’s website that has this option.
Read on to know how you can improve your CIBIL score for a car loan, home loan, credit card, etc.
How to Improve Your CIBIL Score to Get a Favourable Car Loan Offer?
Here are some tips you can follow to help you achieve the desired CIBIL score for a car loan:
Maintain a Steady Payment Record
Payment history and behaviour influence your score quite heavily. To build your credit score, you must make timely repayments without delay. This way, with disciplined repayment for a few months, you can see a significant improvement in your credit score.
There are steps you can take to ensure you build a good payment history, as lenders check your repayment schedule to ascertain whether or not you are a responsible borrower.
Managing EMIs better, avoiding the usage of excessive credit and opting for mixed types of credit are a few measures you can take to maintain a steady payment record, helping you avail a loan with ease.
Avoid Late Payments
Late payments reflect negatively on your credit report and lower your credibility as a borrower. Making late payments also has financial drawbacks. These include late fees, penal interest, and other penalties.
This can have an adverse impact on your CIBIL score, which may even lead to the rejection of a car loan. Thus, ensure there are no payment defaults whenever you avail any type of credit.
Even if you are using a credit card, make sure to pay bills on time, which can help build a better CIBIL score over time.
You can set reminders to ensure you do not miss the payment due date. In addition, you may also opt for an auto-debit facility, wherein the amount gets debited from your bank account on a specific date each month.
Monitor Your Credit Utilisation
A credit utilization limit refers to the overall percentage of credit you have currently utilised from the total available credit. To build an ideal CIBIL score for a car loan or other credit forms, you need to use a maximum of 30% or less credit of the total available amount.
Exceeding this value may perceive you as hungry for credit, thereby delaying your loan approval. You may lower your credit utilisation limit by making an advance payment on your due balance amount. Another way to increase your credit utilisation ratio is to contact your lender and increase the approved limit.
Set Manageable EMIs
A low EMI option is another strategy that may help you optimise your credit score for a car loan or any other type of loan. By paying affordable EMIs, you can make regular and timely payments without overburdening your finances.
Hence, not only does this strategy help manage your finances better, but also gradually improves your CIBIL score. One way to manage your EMIs easily is to opt for a higher tenure.
However, remember that increasing the loan tenure may lead to higher interest outgo, increasing your overall borrowing costs. Make an informed decision when planning your loan repayment, depending on your finances.
Lower Your Total Credit
Before you apply for a car, bike or any other loan, you need to lower your existing total credit. This is because having multiple existing loans and credit cards can reduce your credibility as a borrower. A high amount of outstanding loan balance displays a higher dependency on credit.
Hence, it is important to clear credit card debts or foreclose any existing loan to optimise your CIBIL score for a car loan. You can also take a debt consolidation loan, which will reduce your active loan accounts and the number of EMIs to be paid.
Correct Errors on Your CIBIL Report
Sometimes your CIBIL score may decrease unexpectedly, despite making regular and timely payments. This may be due to errors in your personal details or other calculation mistakes. Thus, it is important to regularly check CIBIL score online, as it helps keep a tab on your CIBIL score.
When you see any such discrepancy in your report, you need to get them fixed; else, it can have a negative impact on your score. Similarly, any outdated information can also lower your CIBIL score. You can check the CIBIL score online for free once a year on the official CIBIL portal and resolve any concerns.
Avoid Closing Older Accounts
Maintaining older accounts reflecting your past credit is equally critical for maintaining an ideal CIBIL score. This is because closing older accounts can reduce the age of your credit history and negatively impact your CIBIL score.
A lengthier credit history helps lenders evaluate your creditworthiness and analyse your credit behavior better. Thus, with an optimal CIBIL score for a car loan, you can get an amount matching your requirements.
Reduce Hard Inquiries
A hard inquiry occurs when banks or NBFCs check your CIBIL report, as a response to you applying for a loan or credit card. These inquiries lower your credit score temporarily, and they are recorded in your report.
Multiple such inquiries will negatively impact your score and reduce your chances of a better offer, as lenders may consider you hungry for credit.
In contrast, when you check CIBIL score online, it is called a soft enquiry and does not affect your score. So, availing credits only when required is an ideal way to minimise the number of hard enquiries.
Opt for Mixed Types of Credit
A healthy credit report includes a summary of both secured and unsecured forms of credit you have availed. A secured credit requires collateral, while unsecured loans are available without security or collateral. Getting both types of credit can help you get better loan offers by improving your score.
In addition, consider taking loans across different durations. This is because maintaining a healthy balance between short and long-term loans also reflects positively on your credit score.
By following these aforementioned tips, you can improve your CIBIL score to get a better deal on your car loan. Moreover, checking your score regularly is a healthy financial habit that can help you in the long run. All it takes is perseverance and discipline to build your CIBIL score for a car loan or any other loan type.