CIBIL Credit Score – Negative Factors and Ways to Improve your Score

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Many of you must have checked your CIBIL credit score sometime in the past and for some of you it must have got a surprise either positively or negatively. Some of you might have been caught unaware of a credit card account running in your name with annual charges being levied year after year. Some of you might have undergone for a loan settlement with the lender which could have impacted your score quite negatively.

But to your surprise, some of you could have found your credit score to be quite high, despite defaulting a couple of times. This is due to some unique but scientific methodologies being adopted by CIBIL to calculate your score.

Factors that negatively affect Credit Score:

1. Late payments or defaults in the past: Your payment history has a significant impact on your credit score. So, if you have missed payments on any of the existing loans over the past couple of years, then the credit score would get negatively affected as it indicates you are facing difficulties in servicing the existing obligations.

2. High utilization of credit limits: You must remain quite careful while using the credit limits available on your credit cards. A higher and higher utilization pattern against the available credit limits is an indication of an increased repayment burden and may negatively affect your credit score. Lower outstanding balances getting reflected in your credit card statements improve this score.

3. Higher percentage of Credit Cards or Personal Loans (i.e. Unsecured Loans): A higher number of unsecured loans coupled with a high utilization would also affect the score in a negative way because of the fact that these unsecured loans carry a very high rate of interest as compared to secured loans like home loans or car loans and result in larger payments and higher defaults.

4. Behaving Credit Hungry: If you are behaving “Credit Hungry” (i.e. in an urgent need of money) and have applied for new credit facilities with a large number of lenders, then it is going to affect your score negatively and make the lenders more cautious while evaluating your application for a fresh loan.

Can your CIBIL Credit Score be improved? If yes, how?

As I mentioned in my earlier post, it is like a CAT examination. Like you can always improve your CAT score by appearing for the exam again, your CIBIL credit score can also be improved, but not overnight. If you have taken a 20-year home loan which is just a couple of years old and you’ve defaulted on your EMIs 3-4 times since the beginning, then it will probably take you at least 2-3 years or probably more than that with regular EMI payments to improve your score. You will have to maintain the greatest of financial discipline in order to secure a better credit treatment in the future. Here is how it can be done.

Measures to improve your Credit Score:

1. Pay your loan EMIs regularly in a timely manner to maintain a clean credit history: Try to keep a diligent track of your EMIs in case you are running more than one loan.

2. It is highly advisable to make full payments on your credit card instead of just the minimum payment. In case it becomes very difficult to pay the bill in full, at least make the minimum payment without fail.

It takes you a longer time to build your credit history with a loan as compared to a credit card as these loans are usually for a longer tenure whereas a regular payment of your credit card bills can help you start building a good credit score as you keep on making the regular payments. A credit card debt is categorized as a revolving credit and it helps in building a good credit score faster if the payments are regular.

3. Do not apply for an extra credit card unnecessarily when your bank’s relationship manager approaches you to get one and actually you do not require it. Applying for an extra card or a loan without any requirement would mean more credit exposure and reaching near the card’s credit limit would result in a lower credit score.

4. If you have been issued a credit card but you have not used it very frequently or the utilize credit limit has been very low, then this would affect your credit score in a positive way as unused credit cards actually imply that you are financially secure.

5. You should use special incomes like bonus or a monetary gift or some other source of savings for the prepayment of some of your existing debt. Early repayment of debt also helps in improving your score.

6. Avoid becoming a joint account holder or a guarantor in a loan or a credit card facility as any default would lower the quality of your credit score.

7. Avoid going in for a settlement or “write-off” of your loan accounts as it implies that you have not been able to pay the past dues. Keeping the credit history clean improves your credit score.

8. You should keep reviewing your credit history on a regular basis to ensure that the credit report accurately reflects your current financial status.

At the end of the day, common sense should dictate what you do with your financial life and good financial habits along with awareness of credit scores will help you build a good credit history and a good credit score.

276 thoughts on “CIBIL Credit Score – Negative Factors and Ways to Improve your Score”

  1. hi sir,
    7 mnths back my credit score was 779….and i am paying all my emis regularly…
    just a couple of months back, i had applied and recieved a credit card and also applied and recvd a housing loan… but i just observed my cibil score and it has fallen to 768….
    but my query is that i am paying all the emis regularly.. then y has it fallen down by 11 points.
    fyi my credit card limit is 60,000 and my highest credit used was 49,000 ..but i had paid it as soon as i recvd the bill i.e before the due date…(all emis are being paid on time…)
    my query is y did it fell down by 11 points? i would be grateful if you can tell me…as i was expecting my cibil to increase…

    1. Hi Samir,
      Credit score is a reflection of one’s credit usage and loan repayment behaviour. In your case, the loan repayment behaviour is fine but the credit usage has gone up since you last checked your score to be 779 i.e. you have taken a home loan and a credit card since then. That is why it has fallen to 768. You need not worry about it. Just keep paying the EMIs & credit card payments regularly and the score will start rising gradually.

  2. Hi,

    i have HDFC ,HSBC and AXIS bank CC. in 2008 i lost my 3 cards and i have settled for HDFC and HSBC and AXIS not issued card again. so far no one is approached me for these 2 banks. for HSBC i have personal loan and i have cleared it now. looking for HL in next year.. what are the chances

    1. Hi Venkat… It is very difficult to comment based on these info. Buy your CIBIL report online, check your credit score and get your report analysed to get answers to your queries.

      1. MY CIBIL score is 603 and HSBC CC status closed.. HDFC status settled.. Axis bank CC write off.. showing ou standing 100500, over deu 47K.. rest are looks fine.

          1. Thanks shiv.. ihave taken FD from ICICI and applied for CC on FD.. with this if i maintain the CC properly will my score improves? in 2012-04 score is 606 and 2013-03 score 603 .. no change.. what is the chance of getting CC?

            1. Hi Venkat… It is like “If I eat food, will it reduce my hunger?” The answer cannot be ‘No’. If you pay your credit card bills on time, it is bound to improve your credit score.

              Also, your chances of getting a CC depends on the issuer bank only whether it is comfortable issuing you a card based on your credit history or not.

  3. CIBIL Reported Someone Else’s Credit Card In My Credit Report!!

    What an irresponsible organization it is, seriously and how lethargic are their services. They have reported someone else’s credit card default in my report, due to which I had to go through a lot of pain, loan application denials and very much of a loss by taking loans elsewhere with higher interest rates.

    The details are provided here, with email exchanges between CIBIL and I.

    http://blog.thitherwards.com/cibil/

    Please go through this and share it with all public, however & wherever possible.

  4. Dear Shiv,

    One last question.
    Does Cibil score also check one’s salary and outstanding credit against that salary?
    I am asking because the ” Employment Information- Income” section of my Cibil report, contains a salary which is 20% of my current salary. Probably Cibil got that figure from a credit card i had taken 7-8 years back. Have no clue but that is what i am guessing. or may be some tax return i had filed 5-6 years back.

    Does it play a role in pulling down one’s cibil score? If yes, how do i ask get my current salary updated in the cibil database?

    Regards,
    Sameer

    1. Yes, your income definitely affects your credit score. The higher your income is, the higher impact it would have on your credit score. You can get your income updated in the CIBIL records by asking the lender to enhance your credit limit on the basis of your current income. You can also do so by applying for a new credit facility.

      1. thanks a lot Shiv. So current salary does play a role.

        But i cant get the lender to enhance my credit limit. the credit card company says that they cant do so with a cibil score of 684.

        That is how i came to understand the importance of cibil score in the first place.

        How can i make Cibil update my salary in their records? should i mail them directly with my last 3 months salary slip/IT Return form?
        Is there any other way?

        1. The problem is that CIBIL makes changes in your report only when the lender reports it. So, you will have to route it through any of the lenders, either the existing one or a new.

  5. Dear Shiv,

    Thanks a lot for your valuable advise.
    You basically advised me to do all the things i had enquired about.

    Within 5 minutes of reading you reply today, i paid back my pending education loan and also formally mailed the bank to close my loan account and update status with cibil. that settles point b.

    Regarding point a) i have already started using debit card for all online transactions. Will use credit card only at places where there are some discounts like movie-ticket-free, 5% cash back etc. Even then will take care to keep paying back the balance amount every week or so.

    Point c, i have some confusion.
    Will opening a credit card against FD help me in improving my score? or will it just keep my score neutral? Although i myself asked you this question in the first place, i have some confusion now.

    I have two credit cards and two Atm cum debit cards. For the last 1 week or so i have started using debit card for all online and offline transactions.
    Will taking a FD based credit card help improve my score in such a situation?
    If yes, then how?
    Also, in that case, should i surrender one of my two current credit cards considering that i will have 3 credit cards. (have read at a few places that you shouldnt have more than 2 credit cards)

    Eagerly waiting for your reply,

    Regards,
    Sameer

    1. Hi Sameer,
      c) Taking a credit card against your FD is considered a positive by the lenders, as this shows that your financial position is sound and the lenders are not at risk by extending you this credit facility.

      Also, it is better to have lesser number of credit cards, but if you are paying back regularly without defaults then it doesnt make much difference to have 2 cards or 3 cards.

  6. Hi Shiv,

    My monthly take home is 48k.
    I have a ICICI credit card with 80k limit and a personal loan with Citibank – pending 9k *3 EMI’s so applied for top up at same bank.
    I recently apllied for personal loan at Citibank for 7Lacs/36 EMI’s – got rejected
    Reason – does not meet our internal credit acceptance parameters
    then I applied at Housing Dev bank for 4Lacs/36EMI’s – got rejected
    Reason – due to EMI defaults in previous personal loan

    During this process I also came to know that, Including Citibank many other banks do not give loan if there is no existing loans!

    After this, I downloaded CIBIL report and no bank has reported any defaults in it. And my score is 784. I have closed/cleared all loans/CC outstandings.

    My credit history:
    I had taken Education loan from SBM in 2004 for an amount of 3Lacs, should have started paying loan by 2008 but I delayed since my salary was about 13K and i was the lone earning person at home. So could not pay emi/payments but I had paid outstanding interest during this period. In 2012 I decided to clear the loan.. and in about 10 months I paid 240000 and closed the Edu loan.
    In CIBIL report its mentioned as restructured loan
    In 2010 I took personal loan from HDFC for 75k, I was paying EMI’s properly but later when I moved to a new company my salary account changed from Citi to ICICI. EMI date was 4th of every month. As soon I get salary i would transfer it to Citi account but by the time its credited to Citi account ECS would have happened and thus the bounce. same is again debited in 2nd presentation. this EMI bounce happened for about 5-6 times but was paid in 2nd presentation.
    I pre-closed this loan later.

    Between 2007 to 2011, I had my salary account in Citibank but since they had fined me for EMI bounce 250 rs each time, I got upset and subsequently closed that accuont and moved to ICICI.
    I also had a Citibank credit card, I converted the outstanding amount into EMI’s and closed it.

    Personal loan was critical for me, and I am deeply upset.
    Please suggest how to go about it. I might need home loan by next year starting.

  7. Hi Shiv ,

    I want to improve my credit score which is currently around 684 . My cibil report has no “settled” or “write-offs” at any place.

    I hold two credit cards and one educational loan. Dont have any other credit exposure.
    I want to improve my score and improve it fast. Have enough cash at my disposal and don’t really need these credit card or the educational loan.
    Can i improve my score by
    a) using debit card for all payments and staying away from using credit cards?
    b) prepaying my educational loan? out of original 6 lacs, only 36k is left now and there is still an year left to pay the entire loan.if i pay these 36 k rightaway, will my credit score improve?(shoul
    c) get a secured credit card (Against fixed deposit of 1-1.5 lakhs)?

    I have enough cash and can do all of the above three, provided they will help me improve my credit score.
    Would be very grateful if you can please share your valuable advise.

  8. Hi Gaurav,

    I want to improve my credit score which is currently around 684. My cibil report has no “settled” or “write-offs” at any place.

    I hold two credit cards and one educational loan. Dont have any other credit exposure.
    I want to improve my score and improve it fast. Have enough cash at my disposal and don’t really need these credit card or the educational loan.
    Can i improve my score by
    a) using debit card for all payments and staying away from using credit cards?
    b) prepaying my educational loan? out of original 6 lacs, only 36k is left now and there is still an year left to pay the entire loan.if i pay these 36 k rightaway, will my credit score improve?
    c) get a secured credit card (Against fixed deposit of 1-1.5 lakhs)?

    I have enough cash and can do all of the above three, provided they will help me improve my credit score.
    Would be very grateful if you can please share your valuable advise.

  9. Hi Shiv,

    Earlier i used to have some credit cards and personal loans. some of them i have settled. now i want to know about my cibil score as i want to apply for home loan. what is the best way to know my cibil score and if it is negative then how can i improve the same. Please guide me.
    Thanks,
    Pawan

  10. Hi Gaurav,
    I’ve applied for a citi bank credit card and got a confirmation that it has been disqualified. later i enquired for my cibil score which is 749 and i found one loan which i’ve closed in dec.2011 is showing in written-off state. I enquired to bank and they told it is closed from our end and i raised request in CIBIL as well. Could you please tel me whether 749 score is good enough to have a personal loan/credit card. I am using SCB credit card for past 5 months and maintaining it regularly.

    1. As said earlier though 749 is a good score,it actually varies from bank to bank.Some banks prefer any score above 750 to issue credit facility whereas others are fine with even 700.Some banks do not issue any credit facility to someone less than 800!!
      In your case ,I suspect,Citi bank would have declined your aplication since your earlier loan repayment was not good and new card is only 5 months old. Besides this there could be some other possibility also like your area not being a serviceable area or a negative area or the income criteria is not matching as per their requirement.
      I would suggest you to write a mail to Nodal Officer of Citi Bank asking for exact reason for credit card application rejection.Do not forget,as per RBI Guidelines dated 6th March 2007,its mandatory for every bank or NBFC to provide EXACT reason of credit facility rejection to customer.Oncethey provide you the eact reason as if its due to your CIBIL score being lesser than 750 then you could send them a written request form to reconsider the decision of issuing credit facility.You have to attach the photocopy of the written communication obtained from previous loan provider stating your loan is completely settled.Also attach a copy of confirmation of CIBIL stating the Written Off status of that loan which is causing you trouble. I expect they will reconsider their decision as 749 is a good score indeed.
      This all procedure might take one month or more and by the same time even your Standard Chartered card will complete 6 months successfully which might increase your score a little more.YOu may try to re-retrieve your score and attach a copy of the same to the letter to Nodal Officer of Citi Bank

      1. Hey Gaurav! Has anyone ever told you that you talk too much?
        I mean please, shut the hell up. U seem to have hijacked this forum!

  11. i am not getting any of cc or loan due to my less credit point issue. I have a cc outstanding on 3-4 months bank but i closed at the time. Also i have some EMI outstanding in my loan which was delayed 3-4 months. But now i cleared all the dues on month of Dec-12.

    Can you please advice what will be my credit points status, whether i eligible for any loan or i have wait some time. Please advice.

  12. Hey shiv, my credit score is 721. Please suggest me , this score is good, average or bad?
    and if it is bad, then tell me the minimum average score, which I have to achieve.

  13. Plz click on my name above my comment; its a link and would lead you to my blog. Not sure whether writing site personal blog url is allowed here! Would like to touch base with you to learn few trick of trade like getting CIR from Financial Institutions 😉

    I had subscribed to CPP since 2011 and it gives me peace of mind; as holding many cards have its own perils. So don’t delay buying of Card Protection policy from CPP / OneAssist or other insurer if you are convinced with benefits of Card insurance. Do read the fine prints and exclusions given in the policy.

  14. oh!yes,Read your blog..But I guess the cards mentioned by you there are not being offered anymore.You still hold them?

        1. Recheck comment section on blog for my reply…

          Actually I thought of not digressing from the topic of this informative article that is why asked you to write on my blog. Don’t want Manshu to block my access to the this blog 😉

  15. Yes I have 17 CIRs.But its not true that I am making them rich,because I had retrieved my reports only thrice.Rest of them are from different banks.
    Can you post the link of your blog?Or if you can enlist them here..
    N yes,I have not yet taken CPP yet,though I am aware of them since long time.

  16. 17 CIR’s??? It seems you are the one making CIBIL rich 🙂

    Do visit my blog and read my First and only blog entry “The Winner “ICICI AirTel rewards HPCL Gold Card “. I had listed few of the cards which I was holding in March 2007 and would soon write a review about the other cards I am using….

    BTW have you taken Cards Insurance Policy from CPP? Its quite necessary for a person having a lots of Plastic Money…

  17. Pankaj
    Even for me its reassuring to find someone else having so many cards just to avail offers..Lolzz!Lolzz
    BTW,which are those 10 cards you are holding currently or availed in past?Do enlist if you can.

  18. Pankaj,
    As said earlier,the highlighted points were mentioned in only 1 CIR of mine out of 17 reports I am having right now.I guess it could be mentioned when my score dropped below 700 after removal of HDFC CARD7 temporarily.The highlighted points vanished when my score again crossed 800 after report of correct and COMPLETE data by HDFC.I think it could have also be one reason that different score card version reports retrieved by 2 different banks.
    Further,though CIBIL’s 3rd and 5th points,both being correct.Its prudence to apply for new credit only in limit,further once new credit facility is availed pay in due time without making default.You may close unused credit at any time by making full payment or cancel unused credit cards without default.You may also keep the unused card active.BOTH THESE THINGS SHOW THAT YOU ARE FINANCIALLY SECURE AND WONT AFFECT YOUR SCORE NEGATIVELY.

  19. @ Shiv / Manshu

    In my case my Auto Loan information hasn’t been provided by Credit Institution to CIBIL.
    I am so regular in EMI payments thru SI towards Auto Loan and also been making huge Pre Payments and all this may have resulted in a better score had Credit Institution reported and certified my Auto Loan Account. But, they forgot to do so 🙁

    So does The Credit Information Companies (Regulation) Act, 2005 enables CIBIL to take action against any Credit Institution who do not provide credit information to CIBIL???

Leave a Reply

Your email address will not be published. Required fields are marked *