What is a CIBIL Score?
CIBIL (Credit Information Bureau India Limited) is one of India’s leading credit bureaus. It collects and maintains records of your credit activity, including loans and credit cards, as reported by banks and NBFCs. Based on this data, it calculates your credit score — a numerical summary of your creditworthiness.
A good credit score not only improves your chances of getting a loan but can also help you get better interest rates. Conversely, a low CIBIL score can lead to rejections, higher interest rates, and reduced financial credibility.
Common Reasons for a Low CIBIL Score
1. Late or Missed Loan EMI and Credit Card Payments
One of the primary reasons for a drop in CIBIL score is delayed payments. Every time you miss a loan EMI or delay a credit card payment, it gets reported to the credit bureau.
Why it matters:
Payment history accounts for a major portion of your credit score. Repeated defaults can significantly lower your score, making you appear as a high-risk borrower.
2. High Credit Utilization Ratio
Using a high percentage of your available credit limit (typically more than 30-40%) can negatively affect your CIBIL score. Even if you pay your bills on time, maxing out your credit card regularly can hurt your score.
Why it matters:
High usage indicates a credit-hungry behavior, suggesting you may be financially overextended.
3. Multiple Loan or Credit Card Applications in a Short Time
Every time you apply for a loan or credit card, lenders make a hard inquiry on your credit report. Multiple such inquiries within a short span can indicate financial stress.
Why it matters:
Too many applications may make you look desperate for credit, which can lower your score and lead to rejections.
4. Having a High Number of Unsecured Loans
A credit mix of both secured (like home or car loans) and unsecured loans (like personal loans or credit cards) is ideal. Relying too heavily on unsecured credit increases perceived risk.
Why it matters:
A skewed credit profile with more unsecured loans can negatively affect your credit score over time.
5. Not Having a Credit History
While not technically a "low" score, no credit history can also result in a low or undefined score. Many young earners or new borrowers face difficulty securing credit due to a lack of prior credit behavior.
Why it matters:
Lenders use your credit history to assess your repayment habits. No history means no data to judge reliability.
6. Errors in Credit Report
Sometimes, your CIBIL score may be low due to incorrect reporting — such as showing a loan you never took, or reporting a paid account as "unpaid."
Why it matters:
These errors can unfairly damage your score and must be rectified immediately to avoid loan rejections.
7. Settling a Loan Instead of Paying It Off Fully
Loan settlement occurs when you negotiate with a lender to pay a lesser amount than what was due, often due to financial distress.
Why it matters:
Settlements are reported as "settled" instead of "closed," indicating that you failed to meet your full obligation, which negatively impacts your credit score.
How to Fix a Low CIBIL Score
1. Make Timely Payments
Start by ensuring all your future EMIs and credit card bills are paid on or before the due date. Set auto-debit instructions or reminders if needed.
Fix Tip:
If you've missed payments in the past, prioritize clearing any outstanding dues to bring your accounts up to date.
2. Maintain a Healthy Credit Utilization Ratio
Aim to keep your credit usage below 30% of your total credit limit. If your limit is ₹1,00,000, try not to exceed ₹30,000 in monthly spending.
Fix Tip:
Request a credit limit increase or distribute your expenses across multiple cards, but don’t use the full limit on any single card.
3. Avoid Multiple Credit Applications Simultaneously
Only apply for loans or credit cards when necessary. If you're shopping around for interest rates, check with lenders if they can do a soft inquiry, which doesn’t affect your credit score.
Fix Tip:
Space out your applications and avoid appearing credit-hungry.
4. Maintain a Healthy Credit Mix
Try to have a balance of secured and unsecured loans in your credit profile. If you already have personal loans, consider repaying some before taking another.
Fix Tip:
A home loan or a gold loan adds positive value to your credit profile as it shows financial planning.
5. Start Building Credit History
If you have no credit history, consider applying for a secured credit card (against a fixed deposit) or a small personal loan.
Fix Tip:
Use the card responsibly and pay all dues on time to start building your score.
6. Dispute Errors in Your Credit Report
Check your credit report regularly (at least twice a year) on the CIBIL website or other credit bureau platforms. If you find an error, raise a dispute with the bureau online.
Fix Tip:
Keep documentation ready and follow up until the issue is resolved.
7. Don’t Close Old Accounts
Long-standing accounts with good repayment history can positively affect your score. Unless there’s a valid reason, don’t close old credit cards or loans that are in good standing.
Fix Tip:
Keep older credit cards active with minimal use to benefit from a longer credit history.
How Long Does It Take to Improve a Low CIBIL Score?
Improving your CIBIL score is a gradual process and may take anywhere from 6 to 12 months, depending on the severity of issues. Consistent, disciplined credit behavior is key to achieving and maintaining a healthy score.
Conclusion
A low CIBIL score isn’t the end of the road, but it is a wake-up call to reassess your financial behavior. Whether it's late payments, high credit utilization, or frequent loan applications, each factor plays a role in shaping your credit profile. By understanding the root causes and implementing the fixes outlined above, you can steadily rebuild your CIBIL score and improve your chances of securing future credit on favorable terms.
Pro Tip: If you’re planning to apply for a big loan (like a home or business loan), start improving your credit score at least 6 months in advance. And remember — good credit behavior is not a one-time fix but a lifelong habit.