Loan Application Rejected? Improve Your CIBIL Score Now

 Rohit and Karan, both in their early 30s, were excited about buying their first homes. They had stable jobs and were ready to apply for a home loan. Rohit confidently submitted his application, only to face rejection due to a low CIBIL score. Meanwhile, Karan got his loan approved at a lower interest rate.

What went wrong for Rohit? And how did Karan get a better deal? The answer lies in their CIBIL scores—a three-digit number that determines your creditworthiness. If you’re like Rohit, wondering how to improve your CIBIL score for better loan approvals, this guide is for you.

What is a CIBIL Score and Why Does It Matter?

Your CIBIL score (Credit Information Bureau India Limited score) is a number ranging from 300 to 900, indicating your credit health. A higher score means better loan approval chances, while a lower score may lead to rejection or higher interest rates.

CIBIL Score Range and Loan Impact

• 750-900: Excellent - Quick loan approvals with low interest rates.
• 650-749: Good - Loan approvals with moderate interest rates.
• 550-649: Fair - Loan approvals possible, but with higher interest.
• Below 550: Poor - High rejection chances and very high-interest rates.

Hard Inquiry vs. Soft Inquiry: How They Affect Your CIBIL Score

When you apply for a loan or check your credit score, lenders and credit bureaus conduct inquiries. These inquiries can be of two types:

• Hard Inquiry: This occurs when a lender (bank, NBFC) checks your credit report after you apply for a loan or credit card. Multiple hard inquiries within a short period can lower your CIBIL score, as they indicate higher credit dependency.
• Soft Inquiry: This happens when you check your own CIBIL score or when a company performs a background credit check. Soft inquiries do not affect your credit score.

Tip: Avoid multiple hard inquiries by applying for credit only when necessary and using lender pre-approval checks before applying for loans.

How to Improve Your CIBIL Score: A Step-by-Step Guide

1. Pay Your Bills on Time – The Golden Rule

Rohit often delayed his credit card payments, thinking a few days wouldn’t matter. But late payments get reported to credit bureaus, lowering his score. Karan, on the other hand, set up auto-debits to ensure he never missed a due date.

Tip: Pay at least the minimum due amount on credit cards before the due date.

2. Maintain a Low Credit Utilization Ratio

Credit utilization is the percentage of your credit limit you use. Rohit maxed out his ₹2 lakh credit card limit frequently, while Karan ensured he never spent more than 30% of his limit.

Tip: Keep credit utilization below 30% to maintain a healthy score.

3. Avoid Multiple Loan Applications

Rohit applied for multiple personal loans in a short period, triggering hard inquiries that signalled financial distress. Lenders viewed him as risky, further lowering his score. Karan researched and applied for one well-suited loan instead.

Tip: Space out loan applications and check eligibility before applying.

4. Check Your Credit Report Regularly

Errors in credit reports are common. Rohit never checked his report, but Karan found a wrong overdue loan entry and got it corrected, boosting his score.

Tip: Obtain a free credit report from CIBIL once a year and dispute errors.

5. Maintain a Good Credit Mix

Having a mix of secured loans (home/car loan) and unsecured loans (personal loan, credit card) positively impacts your score. Rohit only had unsecured credit, while Karan had both, improving his creditworthiness.

Tip: If possible, balance secured and unsecured credit in your portfolio.

6. Don’t Close Old Credit Accounts

Rohit closed his oldest credit card, thinking it would help his score. Instead, it reduced his credit history length. Karan wisely kept his oldest credit account active, maintaining a long credit history.

Tip: Keep your oldest credit account open unless absolutely necessary.

7. Settle Outstanding Dues Instead of Defaulting

Rohit ignored an overdue loan, leading to a loan default in his credit history. Karan negotiated a structured repayment plan with his bank to avoid default.

Tip: If struggling with repayments, talk to your lender about restructuring.

Can I Get a Loan Without a High CIBIL Score?

You can get loans with low CIBIL score, but the approval process would be more stringent. In fact, you might be charged higher interest rates. That’s because banks would identify you as a high-risk customer who has more chances of defaulting a loan. You can read more about it here.