How Much Time Will it Take to Improve the CIBIL Score?
Last Updated : July 25, 2020, 10:48 a.m.
A person’s credit score is as important as his/her income to get approval for fresh credits from the lender. The credit score, which can be anywhere from 300 to 900 in India, is scrutinized minutely by the lender. Those having a credit score of 750 and above will get the approval for loans or credits easily compared to someone having a score less than that. Plus, lenders rely on the credit score provided by CIBIL more than any other credit bureau in India. People often ask, how much time will it take to improve the CIBIL score ? There’s no definite time for it as the improvement depends on your situation. Let’s read this post that throws some light on this matter.
Possible Reasons for a Low CIBIL Score
There can be many reasons for a low CIBIL score, including non-payment for long, frequent applications, high utilization of credit limit, closure of the oldest credit card account, or even debt settlement. Let’s check all these reasons below.
Long Stretch of Non-payments
Doesn’t matter whether the payment pertains to a loan or credit card, you need to pay the dues on time. The payment history accounts for as much as 35% of your CIBIL score. If you are good on this front, the score will keep going upward. Unsecured credits such as personal loans and credit cards can lower your credit score drastically if you have not paid the dues for 3 months or so. Since these credits are not backed with collateral, the score can come down by quite a few points. To get the score back to the desired level, you need to start paying your personal loan EMI or credit card bill on time for at least 6-9 months. As the lender sends your repayment record to CIBIL around 30-45 days from the date of payment, the score may take around 7-12 months to become the desired one should you pay your dues on time.
Frequent Credit Applications
Applying for too many loans can hurt your credit score badly if they are getting rejected by the lender. Too many applications mean multiple hard credit enquiries, which can reduce the score to drastic lows in case they are getting rejected by the lender. Firstly, you need to stop applying for a while and pay your existing debt obligations on time. Assuming your score has fallen below 600 on the back of multiple applications you made, you will require at least a year and a half to get your CIBIL score to 750 and beyond. Once your score goes past that level, you can apply for fresh credits and hope the lender accepts it gleefully.
Excessive Utilization of Credit Card Limits
Credit cards are used excessively these days given the comfort and luxury they offer to customers. There are reward points, cashback, discount across different shopping categories – Entertainment, Dining, Travel, Fuel. All these save for the customers, but there’s a limit for everything. Once you overspend, chances of non-payments will become high. And, if you are doing the same, it could create doubts among lenders and credit bureau about your commitment to pay on time. This fear might reduce your credit score. The drop will be more if you do fail to pay on time. But even if you pay on time, the bureau might cut your score by some points.
Ideally, the credit utilization ratio represents the credits you have used from the total credit limit you are given. The limit used is first deducted from the total credit limit and gets back to normal once you pay the due in full. Financial advisers suggest shoppers not to utilize more than 30% of the credit limit offered to them. You should check your income and existing obligation and set the utilization limits for you.
So, if your score is down due to excessive credit utilization, reduce your usage to below 30%. If you have been paying on time despite high utilization, you will improve the score in a few months compared to someone requiring more time if they are failing to pay on time.
The Closure of the Oldest Credit Card Account
When you have multiple credit cards, paying dues of all can be tough for you. Many cancel the oldest credit card and end up hurting their CIBIL score. The credit utilization ratio goes up when you close any of the credit card accounts. The ratio is obtained by adding the credit balances of all the credit cards and dividing the resultant sum by the number of credit cards. So, when you close a credit card account, the ratio will go up. Plus, closing the old credit card account cuts short the age of the credit, which can reduce your credit score. The improvement of score from here will depend on how much the dip has been. If the dip is not significant, the score can recover the lost point in a few months. In case the score has fallen by some 50-100 points, you will need to keep paying your dues on time. Maybe over a span of 5-7 months, your CIBIL score will be back to the previous level.
Debt Settlement
A debt settlement is an agreement signed between the borrower and lender when the former finds it hard to pay the total due. So, both these parties agree for a reduced amount. Once the borrower pays that, the lender marks it as ‘Debt Settled’ in its report to CIBIL. It is one thing that you should avoid falling to. Although a debt settlement can relieve you from the debt burden, it leaves a spot in your credit record that can make lenders wary of disbursing fresh loans in the future.
The CIBIL score may or may not come down with it. In case it comes down, don’t look for a fresh credit until you are financially strong enough to pay your dues. Since lenders will most likely reject unsecured loan or credit card applications, you should not apply for them. If you want to apply for any credit, go for a secured credit card against a fixed deposit. Pay your bill on time and let your CIBIL score rise quickly. You can also opt for a consumer durable loan where the credit norms are not that stringent. Whatever you choose, the bottom line is – the timely payment of the dues. The score can get back to the desired level in some months to even a year or more depending on where your score is now.
Note – The time mentioned here for the improvement in the CIBIL score is an estimated one. The actual time may differ based on different algorithms and matrices used by CIBIL.