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

by Shiv Kukreja on August 14, 2012

in Credit,Featured

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

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.

{ 4 comments… read them below or add one }

Prabs May 23, 2013 at 12:22 am

Dear Shiv,

Iwanted to go for a home loan and before applying for the same, I applied for my CIBIL score. Unfortunately my CIBIL score as on 20 May 2013 is 601.

I had a vehicle loan which I had defaulted a few times, but I have foreclosed the loan a month back. Also there were 2 credit cards which I had assumed would get closed by itself (in 2008). Unfortunately, the annual fees kep accruing and just this afternoon, I have paid 2 cheques to settle my out standings.

How long would it take before my CIBIl score improves. I want to go for a housing loan in next 40 – 60 days. Do you think it would be possible?

Please advise.


Shiv Kukreja May 25, 2013 at 12:06 pm

Hi Prabs,

It is very difficult for me to guesstimate the time it would take your CIBIL score to improve, but I think if you apply for a home loan with a lower “Loan to Value” (LTV), then it increases the probability of you getting the loan. e.g. If the property your are planning to purchase is worth Rs. 30 lakhs & you manage to pay majority of the cost on your own, say Rs. 16-18 lakhs, then the lender would be happily willing to extend you the loan with even this credit score of 601.


sandeep awasthi May 25, 2013 at 4:36 pm

Is there any bank or Financial unit which offers Personal loan in cibil score of 630


Shiv Kukreja May 26, 2013 at 11:03 am

Hi Sandeep,
CIBIL score alone is not the only factor which the lenders look for while taking their decisions to extend loans to the borrowers. Every lender has its own risk management systems and other parameters to judge your repayment capacity. So, it is not possible for us to name any financial institution which can offer you personal loan with CIBIL score of 630. You should try it yourself with some of the lenders.


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