CIBIL score is an essential aspect of a financial profile. Lenders use it to determine an individual’s creditworthiness. CIBIL score is a three-digit number between 300 to 900, with a higher score indicating a lower risk of defaulting on loans.
Maintaining a good CIBIL score is essential to secure loans and credit cards with favourable terms and conditions. However, specific actions, such as defaulting on loans, missing payments, or having too many credit inquiries, can negatively impact your CIBIL score.
Also, maintaining a good CIBIL score is essential to maintain financial hygiene. It is the practice and habits individuals follow to keep a healthy financial life. It involves managing your finances responsibly and organisation, avoiding debt, making intelligent investments, and building a solid financial foundation.
Just as personal hygiene consists of taking care of your physical health through practices like washing your hands and brushing your teeth, financial hygiene involves taking care of your financial health through budgeting, saving, and investing wisely.
Good financial hygiene also includes:
● Staying informed about the credit score.
● Checking your credit report regularly.
● Taking steps to protect your identity and financial information from fraud and theft.
This article will discuss financial hygiene practices to avoid hurting your CIBIL score and maintain a healthy credit history.
Pay bills on time
A crucial factor that can adversely impact your CIBIL score is late payments. Therefore, it is essential to ensure that all your bills, including credit card bills, loan repayments, and other bills, are paid on time, without fail. If you cannot pay on the due date, try to make the minimum payment to avoid any detrimental impact on your CIBIL score.
Don't apply for a vast amount of credit at once
If you seek credit, the lender will review your credit report, and a large number of inquiries may hurt your CIBIL score. Consequently, it's best to refrain from applying for excessive credit at once and stagger your credit applications instead.
Monitor credit report
Monitoring your credit report is essential for maintaining a healthy credit profile as it has information about your credit accounts, payment history, credit inquiries, and other details that determine your creditworthiness. Regularly reviewing your credit report ensures that the data is accurate, up-to-date, and error-free. You can also detect any fraudulent activity or unauthorised accounts opened in your name and take immediate action to rectify them.
Monitoring credit reports helps identify areas where you can improve your credit score, such as reducing debt or making timely payments. Additionally, many lenders and financial institutions use credit reports to determine the terms and conditions of loans and credit cards, so knowledge about your credit report enables you to negotiate better rates and terms.
Keep old credit accounts open
Maintaining a positive credit history is crucial for calculating your CIBIL score. Hence, it is advisable to avoid closing old credit accounts, even if you do not use them regularly. Closing such accounts may decrease your credit history's duration and have an adverse effect on your CIBIL score.
Use credit wisely
Credit can be a helpful tool for making purchases or investments, but when not used responsibly, it can lead to debt that can be challenging to repay. By using credit wisely, you can avoid falling into a cycle of debt that can negatively impact your credit score and financial well-being. It’s best to avoid using credit excessively.
One way to keep credit utilisation under check is to keep the credit utilisation ratio (the amount of credit you use compared to the credit limit) below 30%. If you are using credit too much, it can indicate to lenders that you are overburdened with debt and may be unable to repay it.
In conclusion, your CIBIL score is a critical aspect of your financial life. By following these five tips, you can help protect your CIBIL score and ensure that you are in a solid financial position when you need credit in the future. Remember, building a good credit history takes time, so be patient and stay disciplined in your financial habits.
Manavjeet Singh, MD & CEO, CLXNS Technologies
