10 Reasons Why You Have A Low CIBIL Score

The three-digit CIBIL score is a reflection of your creditworthiness. All financial institutions check borrowers’ CIBIL scores before approving a loan and having a low cibil score can hinder the process of application. Understanding the common causes of a low CIBIL score can help you take proactive steps to improve your financial health. For individuals who are wondering how to increase their CIBIL scores, this article discusses certain measures they can take to improve their credit profile.

If you have often wondered why my CIBIL score is low, it may be because you are not following the below-mentioned factors: 

1. Delayed Payments

One of the most significant factors affecting your CIBIL score is your payment history. Late payments on loans or credit cards can lead to a drop in your score. Consistently missing deadlines creates a negative impact on your credit profile.

2. High Credit Utilization

Using a large portion of your available credit limits can signal financial distress to lenders. Ideally, you should aim to keep your credit utilization ratio below 30%. High utilization can suggest that you are overly reliant on credit, which may lower your score.

3. Defaulting on Loans

Defaulting on loans can have severe repercussions for your CIBIL score. When you fail to repay a loan, it reflects negatively on your credit report, and the impact can linger for years.

4. Too Many Enquiries or Applications

Each time you apply for credit, lenders perform a hard enquiry to assess your creditworthiness. Multiple loan application or enquiries in a short period can lower your score, as they may indicate that you are in desperate need of credit.

5. Outstanding Dues

If you too many outstanding dues on your existing loans, it can adversely affect your CIBIL score. Lenders look at the overall health of your credit history, and outstanding dues on closed accounts can be a red flag.

6. Limited Credit History

Having a very few credit accounts, can also contribute to a low CIBIL score. Lenders may be hesitant to extend credit to individuals with little to no credit history, perceiving them as high-risk borrowers.

7. Errors in Your Credit Report

Mistakes in your credit report can lead to a lower score. This could include incorrect personal information, accounts that don’t belong to you, or wrongly reported payment statuses. Regularly checking your credit report can help you identify and rectify these errors.

8. Unpaid Utility Bills

While utility bills may not directly affect your CIBIL score, unpaid bills can lead to collections, which will impact your creditworthiness. Consistently paying your utility bills on time is essential to maintain a healthy credit profile.

9. Co-Signing Loans

Co-signing a loan means you’re taking on the responsibility for someone else’s debt. If the primary borrower defaults or misses payments, it can negatively affect your score as well. It's essential to consider the financial habits of those you co-sign for.

10. Having Multiple Credit Cards

Having too many credit cards can increase your risk of overspending and missed payments, thus impacting your CIBIL score.

▶️Also read our blog to learn “Everything You Need to Know About CIBIL Score?”

Here are some effective tips to improve your CIBIL score:

1. Check Your Credit Report Regularly

Carefully review your credit report for any inaccuracies. Errors can negatively affect your score. If you find errors, dispute them with the concerned credit bureau.

2. Pay Bills on Time

Make sure to pay all your bills, including credit card bills, on time or before the due date. Late payments can significantly damage your credit score.

3. Reduce Credit Utilization

Try to keep your credit card balances well below your credit limit. High credit utilization can negatively impact your score. If possible, pay down your credit card balances to reduce utilization.

4. Limit New Credit Inquiries

Too many credit inquiries in a short period can lower your score.

5. Close Unnecessary Accounts

If you have credit cards that you don't use, consider closing them. Having too many open accounts can sometimes lower your score.

Now that you know how to increase the CIBIL score make sure to use the different strategies discussed above effectively to improve your credit profile. This will help to avail any form of credit from financial institutions without any hassle.

Disclaimer: This blog is solely for educational purposes.