As we know by now, in addition to your income, your CIBIL Score and Credit Information Report (CIR) are the most important tools used by a lender to evaluate your application for a Loan or Credit Card. Since your Credit Score is derived from your CIR, it is important to understand how you can strengthen your credit history so that it is viewed favourably by lenders. A good credit history can be maintained by following these 6 simple rules:
Rule 1: Always pay your EMIs/Dues on time. Late payments are viewed negatively by lenders and may affect the chances of your loan getting approved.
Rule 2: Keep your balances low. While the balances on your loans will only reduce over time as payments are made, you must be diligent not only about making timely payments on your Credit Cards, but also about credit utilization. For example, if you consistently max out your Credit Card limit, and end up carrying some of the outstanding balance to the next billing cycle, lenders may view it negatively as this indicates high debt. It is always prudent to use this instrument wisely.
Rule 3: Maintain a healthy mix of credit. Your credit history should contain a mix of secured loans (Home loan, Car loan, etc.) and unsecured loans (Personal loan, Credit Card, etc.). If you have a high mix of only unsecured loans, it may be looked at more cautiously.
Rule 4: Apply for new credit in moderation. If you have made many applications for loans (you can check this in the enquiries section of your CIR), or have recently been sanctioned new credit facilities, a lender is likely to view your application with caution. This behaviour of seeking excessive credit indicates that your debt burden is likely to or has increased, and you may be less capable of honouring any additional debt.
Rule 5: Monitor your co-signed, joint and guaranteed accounts monthly. In co-signed or jointly held accounts, you are held equally liable for missed payments. This is extremely important because your joint holder’s negligence could affect your ability to access credit when you need it.
Rule 6: Review your credit history frequently throughout the year. Unpleasant surprises in the form of rejected loan applications can be avoided by ensuring that your CIR accurately reflects your current financial status. So reviewing your credit history 3-4 times each year is imperative.
Though it’s important to keep these general rules in mind, please note that every lender has their own policies to sanction a loan.