Verified: How to Improve CIBIL Score

I read posts about how to improve CIBIL score. They all say, make payments on time, use credit card below limit, don’t apply for many loans in a short time.

I say these are not about improving CIBIL score but maintaining it. Because they are for people who have running loans.

Here I want to help people who had genuine financial hardship. Because of which their CIBIL score got hit, and no lender is ready to give loans to them. Many of them do not apply for loans because of their CIBIL score.

If you are one of those people, assuming bank loans are not for you. Well, No!

You can make things right If you are ready to take a few steps to correct it.

Though there’s a secret algorithm of CIBIL score, that science is based on simple logics. Basis on these logics I have improved my CIBIL score from 581 to 800. Yes, I ruined my CIBIL in job to business switch nine years ago. But unless you know the CIBIL logics and act on them, it will not get any better.

CIBIL score does not declare someone worthy or unworthy of credit. Bankruptcy officially declares people not worthy of credit only for 6-8 years. If you have not filed for bankruptcy, improving CIBIL score is well within your means.

If you act on a three-stage process, things are going to be fine for you.

Ready to learn?

Why Improve CIBIL

When your CIBIL score is in bad category (below 550), banks may not even consider your application. If your score is in fair category, few lenders may take risk at a higher rate of interest. Below are two general examples for what not having a good score may cost you.

7 Lakhs car loan for 6 Years

40 Lakhs home loan for 20 Years

Apart from extra cost in interest, you pay higher processing fees and insurance expenses. With limited finance options, you are not in a position to choose.

Before You Improve CIBIL Score: Prepare the Mind

You cannot improve CIBIL score in one or two months. It is a journey that can take 1 to 2 years. Time will depend on how bad the CIBIL is, and how fast you are ready to take actions.

Did you come here for a quick fix? Well, there are none.

It is important that you move in the right direction. If you never start because the journey is long, forget about winning.

During this period sacrifice your leisure, the fine dining, and a holiday on the beach. We are doing something more important here.

Hold your small needs. For bigger things, like a new car or house, we naturally take a longer time to plan.

During this journey sometime you may spend small cost, but when you finish, you will save much more than you will spend.

For your better financial health, let’s get started...

The First Stage to Improve CIBIL

To get new loans, you must close previous loans. An exception can be disputes with existing financiers on charges or some fraud.

Unless you do not close previous loans, you won’t get new ones.

Why?

Say a friend took a loan from you and did not return, what are the chances you will lend him again? Despite emotional angle and personal relation, chances are thin.

Ok, let’s take it a step further.

You want to help your friend, but you do not have money. To help him, you need to borrow money from other sources. Will you still help? Chances are even lesser.

The same way banks are traders of money. They lend or trade money borrowed from other institutions. Sorry, but they are in business for making profits. And being from the same community, they follow ethics to ensure closure of overdue from previous bankers.

Closing your outstanding loans is an important step. Do it as soon as possible.

If you are planning a home loan after 2 years, close existing bad loans in less than half of this time. So you can use the remaining half time to improve CIBIL score.

You can expedite this process by running both stages parallel to each other.

Settle or Full Payment for Current Dues

Neither CIBIL nor banker discuss it in the public domain. Let’s roll it.

Say two persons have outstanding payments for two years on their loans. One makes full payment to the bank, the other makes a settlement for a lower amount.

I have seen little difference in the result of both situations. The reason to affect CIBIL score is a delay of 720 days. Why this happened or how you resolve it does not seem important.

Do credit managers take a soft approach if you fully pay your dues? Well, I have not seen so.

The Next Level to increase CIBIL score: Secured Loans

After closing your loans, you do not become creditworthy. It is because of delay in past payments.

To improve CIBIL score and become creditworthy, you must execute the second stage. You need to display your incomes are steady, and you are now serious about your contracts.

For this, take some secured loans. You can get the following credits despite bad CIBIL:

• Gold loan
• OD against FD
• Credit card against FD.

When you get these credits, do not fail even a single payment, no matter what. On credit cards, do not spend this month, if you do not have money for its bill payment.

Not Spare Money for a Fixed Deposit

If you do not have enough money for FD, change your spending pattern.

Say your monthly income is one lakh rupees and do not have any savings. First, make an FD before spending your money. In two days, you can get OD up to 90% of your FD amount. Whatever amount you use will cost you only one to two percent higher interest over FD.

Bank will charge you interest on a monthly basis. On your regular repayment, this OD reflects in your CIBIL record as a standard account. At the end-of-year, you will get compounding interest on your FD.

In this way, you are paying one to two thousand rupees for one year. When you have some balance in your OD account for few days in a year, your FD interest will neutralize this. So, you improve CIBIL score almost for free.

Banks can issue a credit card with a 75% limit against an FD. Imagine, how much money you can save by using a credit card’s interest-free EMI, cashback, and reward points.

With the correct method of using credit card, you can use the bank’s money paying no interest simultaneously increase CIBIL score. But here is a word of caution: to improve your CIBIL score, use not over 60% of your card limit in any circumstance.

Final Stage to Increase CIBIL Score: Unsecured Loans

Few shopping apps as Paytm, Amazon, Ola, etc offer unsecured post-paid limits. After 6 months of availing of your secured loans, check your eligibility for this post-paid facility.

They offer a tiny limit initially, but important is you getting started with unsecured loans. When you make timely repayments for these wallets, it makes a positive effect on your CIBIL in “numbers of positive credit record”.

At first, I received a post-paid limit of 500/- on Paytm post-paid. On regular usage, they increased it to 5000/- within six months. Same way, Ola post-paid offered me a limit of 500/- which got enhanced to 6000/- in less than six months.

It is not; I needed to use these small limits, but I paid through my post-paid wallets to increase CIBIL score.

Few months after using wallet loans, you can apply for a home appliance loan and later personal loans.

As you are rebuild your CIBIL score, ensure you make every payment before the due date. These methods have helped me to improve my CIBIL score from 581 to 800 points.

If you take the correct steps, these things can help you increase CIBIL score too.