How to check Credit Eligibility For Low CIBIL Score


You may not be in school or college anymore; yet there exists a score which impacts you heavily. CIBIL Score – the three digit numeric score is a reflection of a person’s entire credit history and has the potential to impact one’s loans and borrowing ability, favourable or adversely, depending upon the score! Well, the CIBIL score’s range lies between 300 and 900; if you are nearing the lower end of the spectrum then you would benefit a lot by reading this article. And even if your CIBIL score is sky high, the information shared ahead will definitely come handy.

Let’s talk CIBIL score. The golden rule here is you should focus on the way you utilize and manage your credit card limit. Yes, it is not just the formal loans or bank borrowings that determine your CIBIL score; your credit card has a role, a LARGE role, to play as well! And all those readers who are worried about their low CIBIL scores, the easy way out is to increase the credit limit of your credit card but restrict the credit card usage once the limit is increased. In specific terms, this amounts to impacting CIBIL scores via high credit utilization ratio.

Credit utilization ratio, as the phrase is self-explanatory, reflects the ratio of total credit utilized by you on your credit card versus the total credit limit available. For example – when your credit card has a credit limit of Rs 50,000 while you spend 45,000 per month on the same credit card; your Credit Utilization ratio is 0.9. Now, it may sound silly, but getting your credit limit increased is the first step to improving your CIBIL score. Say your credit limit is now Rs 1,00,00. If you can restrict your credit card in such a situation, you will be able to bring down the credit utilization ratio which will impact your CIBIL score favourable. To exemplify further, spending 40,000 Rs from this limit of Rs 1 lakh will bring down your Credit utilization ratio to 0.4. And so will begin the improvement in your CIBIL score! Of course this “trick” works, but for long term benefits to your CIBIL score, it’s wise to bring your utilization even lower regardless of how high your limit gets.

The most expert tip in the context of credit card usage is to keep calm. Do not cancel your credit cards without understanding the repercussions. Similarly, do not over-use your cards. And finally, high credit utilization ratio is fatal for your credibility. And sharpen your shopper’s awareness! Resist the allure of shopping through your credit card as much as you can if you are working on improving your CIBIL score.

Keeping your overall credit utilization below 20% of the limit is ideal in our opinion. It’s better to for your CIBIL score to utilize 20% of your limit on two different cards than 40% on one card. Keep calm and credit on everyone! Stay smart and your score will soar.

"Anything in excess is a sin" goes an old adage. Like in life, even in handling your finances, indulging can prove to be a spot on your credit history. Take for instance, credit card utilisation. A reader named Vishwanath Pai wrote to me seeking some help to improve his Credit Information Bureau (India) Limited (CIBIL) credit score. I sifted through his profile and it was fairly obvious that details pertaining to job, company and liabilities were hardly ambiguous and complied with most rules. He has a high paying job in a multinational company. He had paid off his home loan and car loan. There was no loan under his name. He had paid his credit card outstanding before due date and had never defaulted on any loan. Still, his credit score was low. So, I had to dig deeper into his financial records. On close inspection, I found that he had a very high credit card utilisation levels in the last six months-the utilisation was consistently above 90 percent.

Vishwanath had secured two credit cards five years ago. At that time, his salary was low and so were his expenses. Over the years his expenses went up, but he did not seek increase in his credit limit. His expenditures every month were close to Rs190,000 whereas his credit card limit including the two cards was Rs 200,000. The easy way out I suggested was to approach the banks and ask for an increase in credit limit on both cards in line with his current salary. There are many like Vishwanath, who end up living with a low credit score just because their credit card utilisation levels are very high. Reasons may vary. Some live with old credit limits, the way Vishwanath did. Some just cannot resist their expenditures and end up using one credit card limit 100 percent. But these users forget the fact that using credit card to its maximum credit limit can impact their credit score.

A credit bureau typically looks at this in two ways. First, if you have hit the limit on credit cards and there is an untoward development like loss of job, it is highly likely that you may default on the repayment of outstanding. A point to note here is that the credit card outstanding is unsecured debt for the credit card holder and one who uses maximum such limit, which indicates that the individual has a voracious appetite for credit. Naturally, for such individual her CIBIL score goes down. 

To better deal with this situation, you should understand credit card utilisation level. Credit bureau interprets credit card utilisation on both parameters - utilisation per card and utilisation of overall limit - all cards put together. This can be understood with an example. Suppose you have two credit cards - each with Rs 1 lakh credit limit. You spend Rs 1 lakh on the first credit card and Rs 5000 on the other. Credit card utilisation for these cards stand at 100 percent and 5 percent respectively. And considering this, the overall limit the utilisation is at 52.5 percent. Here the 100 percent utilisation of first credit card's limit can pull down your credit score, though the overall credit utilisation may not be alarming. As a rule of thumb, you should limit your utilisation of credit card limit to 30 percent, jointly - which means on each card and all cards put together this number of 30 percent matter. 

Now let us look at how to deal with this issue. First, try to analyse the main reason behind such high utilisation of credit limit. If your credit limits are low, enhance it by offering recent income proof. Spend across credit cards - instead of utilising 100 percent limit of one card and none of the other, spend on both cards. If you are spending too much money, cut down on your expenses. If you are not allotted more credit limit apply for a secured credit card or pay using other channels such as net banking. If you see your expenditure ballooning in a particular month, you may also pay your credit card issuing bank, much before the end of the cycle, and bring down your outstanding credit. Bring down the credit card utilisation level below 30 percent for six months to one year, and you will see your CIBIL credit score gradually improving. Observing these rules can help sail through various financial hardships. Because be it food or money, exercising control can help you relish it well.

Credit utilization ratio stands for ratio of monthly outstanding payment from your credit card with numerator and credit limit provided on your credit card as denominator. For example, if your credit card limit is Rs 50,000 and monthly outstanding payment on this card is Rs 20,000 then, your credit utilization rate would be 40%. If you hold more than one credit card then, aggregate ratio would be calculated for all cards.

There is huge relation between credit utilization rate and cibil score. It is estimated that credit utilization constitutes 30% of your overall cibil score. It is estimated that you should strive to maintain a credit utilization rate of under 30%. Before applying for a loan you can take help of online cibil score calculator to roughly estimate your cibil score.

If your cibil score is not upto mark due to high credit utilization rate then, you can adopt following measures to safeguard yourself –

  1. Increase limit on your existing card–You can reduce your credit utilization rate by increasing limit on your existing credit cards. Banks would be more than willing to increase your credit limit if you have been diligent in past towards credit card debt payment. This will decrease your credit utilization rate.
  2. Get another card – You should also think about adding another credit card for yourself. This step will increase your total credit limit considerably without any considerable effort. A low credit utilization rate would automatically reflect in better cibil score.
  3. Payment alert– Usually, credit card holders pay their outstanding credit card balance though auto debit from their account on specified date. But, you can set an manual alert for yourself twice a month to pay from your own account rather than auto debit. This will greatly reduce your credit utilization rate and hence will result in good cibil score.
  4. Watch your behavior – You should check your credit card utilization frequently from time to time. You can check it regularly by logging in to your account and observing your past and current credit card behavior. By doing this, you prevent yourself from sudden high utilization rate that may impact your cibil score.

You can clearly see impact of credit utilization on your cibil score by going through calculations performed by any online cibil score calculator. Credit utilization is a major chunk of your cibil score calculations and you should take every measure to make sure that this aspect is not able to negatively impact your cibil score.



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