Your Credit Information Bureau (Cibil) credit information report (CIR), other than your income, is the single most important tool used by a lender to evaluate your application for any loan or credit card application. Naturally, it's important that you understand your Cibil CIR and what it takes to maintain a credit history, so that it is viewed favourably by lenders. A good credit history can be maintained by following these seven simple rules:
RULE 1:
Always pay your bills on time. Late payments are viewed negatively by lenders and may affect the chances of your loan getting approved. In addition, if you do not make payments on loans for more than 180 days, the lender may "Write Off " the amount in question. The lender then proceeds to report this on your Cibil CIR.
Moreover, in the event that you make a payment which is less than the amount the lender believes it is owed, the lender will report this as 'settled' to Cibil. For example, if the lender tells you that you owe it . 100 but you pay only 80 to the lender, it will then report your account as 'settled' to Cibil.
Both 'write off ' and 'settled' accounts may be viewed negatively by lenders while evaluating your loan application because this status implies that you haven't been able to adequately repay your lender.
RULE 2:
Keep your balances low. Most lenders review the total outstanding debt of a potential borrower (across all types of accounts) and the amount of debt used in proportion to the amount of debt sanctioned to the borrower by the lender. While the balances on your loans will only reduce over time as payments are made, you must be diligent about controlling your credit card utilisation. For example, if your "Current Balance" is 90,000 with a "High Credit" of 1,00,000, this may be viewed negatively by a lender. While it is always prudent to not use too much credit, if you are already approaching the boundaries of your existing sanctioned amounts and credit limits the lender may be reluctant to provide additional loans to you.
RULE 3:
Maintain a healthy mix of credit. Your Cibil CIR should contain a mix of a home loan, auto loan and a couple of credit cards. A high number of just credit cards may affect the chances of a loan approval. You may wonder why. Although a credit card offers easy access to finance, it's also by far the most expensive form of credit. The more the number of credit cards with high utilisation, the larger are the payments resulting from the high interest rate charged on credit cards. This may affect your ability to service additional debt obligations.
RULE 4:
Apply for new credit in moderation. If you have made many applications for loans, or have recently been sanctioned new credit facilities, a lender is likely to view your application with caution. This 'credit hungry' behaviour indicates your debt burden is likely to, or has, increased and you are less capable of honouring any additional debt.
RULE 5:
Think twice before closing credit card accounts. While using credit cards may negatively impact your Cibil CIR, unused credit cards actually imply that you are financially secure. This makes lenders view your application more favourably.
RULE 6:
Monitor your co-signed and joint accounts monthly. In cosigned 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 7:
Review your Cibil CIR frequently throughout the year. Unpleasant surprises in the form of rejected loan applications can be avoided by ensuring that your Cibil CIR accurately reflects your current financial status. So reviewing your Cibil CIR 3-4 times each year is important in order to keep you financial health in good stead.
Though these general rules are important to keep in mind, each lender has its own policies to sanction a loan to an applicant.
