Maintaining a good CIBIL score is often linked to making timely payments on loans and credit cards. While paying your bills on time is crucial, many people don’t realize that it’s just one piece of the puzzle. Simply ensuring your EMIs and credit card dues are paid on time may not automatically result in a strong credit profile.
In this article, we’ll break down why just making payments on time isn’t enough for a good CIBIL score, and what other factors you should consider. Whether you’re an individual borrower or a financial professional, understanding these nuances can help you manage credit better and improve your financial health.
Good CIBIL Score: What You Must Know
| Key Points | Details |
|---|---|
| CIBIL Score Range | 300 to 900 |
| Ideal Score For Loan Approval | 750+ |
| Payment History Contribution to Score | 35% |
| Other Factors Affecting CIBIL Score | Credit utilization, credit mix, credit inquiries, credit history length |
| Recommended Credit Utilization Ratio | Below 30% |
| Number of Credit Enquiries To Avoid | More than 2-3 hard enquiries within 6 months |
While making timely payments is essential for a good CIBIL score, it’s not the only factor. Paying attention to credit utilization, maintaining a healthy credit mix, limiting hard enquiries, and monitoring your credit report are equally important.
Understanding the CIBIL Score
CIBIL Score (Credit Information Bureau India Limited) is a three-digit number ranging between 300 and 900, reflecting your creditworthiness. It helps lenders evaluate how likely you are to repay borrowed money. A higher score means you’re seen as a lower risk.
Most banks and financial institutions prefer a score above 750 for approving credit cards, loans, or mortgages.
What Makes Up Your CIBIL Score?
The components of your CIBIL score are:
- Payment History – 35%
- Credit Utilization Ratio – 30%
- Length of Credit History – 15%
- Credit Mix (Types of Credit) – 10%
- New Credit Enquiries – 10%
While payment history is the most significant factor, ignoring the other four can prevent your score from improving.
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Why Payment Timeliness Alone Isn’t Enough
1. High Credit Utilization Ratio Hurts Your Score
Even if you’re paying your credit card bills on time, consistently using more than 30% of your credit limit can lower your score. This is because lenders may see high utilization as a sign that you’re over-reliant on credit, which increases risk.
Example:
If your credit card limit is ₹1,00,000, ensure your monthly usage stays below ₹30,000, even if you clear dues in full.
2. Limited or Unhealthy Credit Mix
Having only one type of credit (e.g., just credit cards) might limit your score improvement. Lenders favor borrowers who can handle both secured loans (like home loans) and unsecured loans (like credit cards) responsibly.
Tip:
Consider having a balanced mix of credit products – maybe a small personal loan alongside your credit card – to diversify.
3. Short or Interrupted Credit History
A long, stable credit history shows consistency. Frequently closing old accounts, even if they’re paid off, can shorten your credit history and negatively impact your score.
Professional Insight:
Avoid closing your oldest credit card, even if unused. It boosts the average age of your credit accounts, supporting a better score.
4. Too Many Hard Credit Enquiries
Every time you apply for a loan or credit card, the lender pulls a hard enquiry on your credit report. Multiple such enquiries within a short period may indicate desperation for credit and lower your score.
Advice:
Limit credit applications. Compare loan options first, then apply selectively.
5. Errors on Your Credit Report
Incorrect information, outdated debts, or duplicate entries can unfairly drag your score down. Even if you’re making payments on time, such errors may go unnoticed and affect your score.
Action Step:
Check your credit report every few months and dispute inaccuracies on the official CIBIL website.
Practical Guide: How To Build & Maintain A Good CIBIL Score
Here’s a step-by-step approach:
Step 1: Pay Bills On Time
- Set up auto-payments or reminders to avoid missed payments.
Step 2: Keep Credit Utilization Low
- Use less than 30% of your credit limit.
- Ask for a higher limit but keep usage steady.
Step 3: Maintain A Healthy Credit Mix
- Balance between secured (home loan, auto loan) and unsecured credit (credit cards).
Step 4: Limit Credit Applications
- Avoid multiple loan or card applications within a short span.
- Step 5: Monitor Credit Reports Regularly
- Review your CIBIL report quarterly.
- Dispute errors immediately.
Tips From Financial Advisors
I’ve consulted with credit counselors and financial planners, and they commonly recommend:
- Do not co-sign loans unless necessary. If the primary borrower defaults, your score suffers.
- Negotiate settlements carefully. Settling a debt for less than owed might clear dues, but it negatively affects your report.
- Avoid frequent balance transfers. Though tempting, it may reduce average account age and signal financial instability.
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Common Mistakes That Damage CIBIL Score
| Mistake | Impact |
|---|---|
| Using over 50% of credit card limit regularly | Reduces score despite timely payments |
| Closing old credit cards | Shortens credit history |
| Applying for too many credit cards/loans | Multiple hard inquiries lower score |
| Ignoring credit report errors | Unnoticed inaccuracies drag score |
| Defaulting as a loan guarantor | Your score drops if the primary borrower defaults |
Good CIBIL Score FAQs
1. How often should I check my CIBIL score?
It’s advisable to check your score once every three months. You can check it for free once a year on CIBIL’s official website.
2. Does checking my own credit score lower it?
No, self-checking your score is considered a soft enquiry and does NOT affect your score.
3. Can I improve my score quickly?
There’s no instant fix, but within 6 months of disciplined credit usage and low utilization, you can see improvements.
4. What’s the fastest way to lower credit utilization?
- Pay bills twice a month to keep balance low.
- Request a credit limit increase but don’t use the extra credit.
5. Will settling debts improve my score?
While it closes the account, it marks the account as “settled,” which is viewed negatively compared to “closed” after full payment.
