Whenever you apply for a loan, your past repayment record is always checked by banks before issuing you the loan money. Your repayment record on any investment done accounts for your credit score.
Banks use these credit scores to evaluate your intent of repayment of the applied loan in future by matching it with your record. The Reserve Bank of India has also made it mandatory for the banks to check the CIBIL score of loan applicants before sanctioning them any loans.
So, your past behaviour is related to clearing your loans to define your chances of availing loans comfortably in the future. Here is how you can improve your credit score to gain benefits in the future.
Get a credit card: Credit history is built based on the record of the past. If there is no credit card, then there is no record to prove your credit score. So, the first and foremost step is to build your credit history by purchasing a credit card. The credit card must always be taken on your own money.
Spend within the limit: Most often, people lose out on credit score by spending more than the given credit limit. You usually end up accumulating a huge interest on the extra allocated amount which makes it difficult to clear the dues later — any such delays in dues clearance results in giving you a low credit score.
Limit your expenses: You do get tempted to buy a couple of new garments every month, or go out on a couple of outings or shop some household items, etc. But, the expenses should be well-controlled and stay within the limits if you end up buying more than what you can afford than there are more chances of using available credit and bringing up your debts.
Set reminders for on-time payments: For paying any EMI, you have to follow a strict discipline of paying on time. Any delay will cost you the penalty and also affect your credit score. So, make sure to set reminders to pay your EMI’s on time.
Try and maintain your oldest credit cards: Having the earliest credit cards shows your most past and most reliable credit history as far as you have been paying your bills on time. This will help to build a strong credit score in the future.
Use lower credit limit: You must customize your credit limit to allow a lower credit usage. This will help you lower your expenses and will help you build a good credit score in the future.
Take loans on longer repay time: When you avail loans on a more extended period, then, you end up paying lesser EMI each month. This ensures that you can meet your financial commitments on time.
Select different loans: You must have the right mix of secure as well as unsecured loans. If you have never applied for a loan, then, you never had any credit history to prove which will make up for a low CIBIL score. So, having a healthy mix of secure as well as unsecured loans will help you to build a good credit score.
These steps will not immediately improve your credit score but will take a good 6 months to even up to one year to improve your credit score. These habits must be made a regular part of your life to maintain a good CIBIL score always.