Need a loan? Improve your credit rating

Credit rating is the statistical system used by lenders to determine your creditworthiness. Before extending any loan or credit to you, lenders check things like how much money you earn, how long you’ve been using credit and whether you’ve made payments on time.

Information about you and your credit experiences is collected from your loan application and your credit report. Using a statistical program, lenders compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points – a credit score – helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

Why is credit scores are used?

More credit. Better pricing. Objective assessment. These are just few of the benefits of your credit information report (CIR), reflecting debt obligations serviced regularly and in a timely fashion.
When you approach a lender for credit, your application will be evaluated on the basis of your past payment history, existing credit lines and other factors such as income and security. In this case, a good CIR is one of the best indicators of the level of risk you present to the credit grantor. A CIR that reflects a good past payment history may lead to credit being granted on better terms. On the other hand, a CIR, which indicates that a borrower has been delinquent on several occasions, could lead to denial of or extremely expensive credit.

Credit Rating in India

Credit Information Bureau (India) Limited (CIBIL) provides lenders information about your credit information report (CIR). For the first time in India, CIRs containing factual records, credit histories of borrowers are available. Lenders across the country access reports from CIBIL in order to make quick, objective credit decisions.

What can you do to improve your credit score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change. The trick here is you can’t find out your score. Companies providing loans and credit do not disclose their credit appraisal criteria. But both the score and the statistics that go into it are top secret. The reason being that if people understood their appraisal criteria and scorings, they could cheat by altering their profile thereby artificially jacking-up their over all credit score.

But, of course, we will try to improve our credit scores, won’t we?

There are certain things we do know. Fewer credit cards are better than several cards. Paying on time is a must. Some of the things that weigh heavily are stability both at home and on the job and a good payment history. The scoring system looks at how close you are to the limits on your cards, what you spend money on and how much you ask for in cash advances.

In order to ensure a high-quality CIR, it is important to re-pay your loans on time. However, as you accrue more debt, special efforts are required to ensure this. The ‘buy now, pay later’ mindset has left borrowers struggling to strike an adequate cash-flow balance. In this scenario, it is extremely important for you to maintain appropriate, reasonable and affordable levels of credit and ensure regular and timely re-payment of loans.

Scoring models generally evaluate the following types of information in your credit report:

  • What is your outstanding debt? Many scoring models evaluate the total amount of debt that you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
  • Have you paid your dues on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid your dues late.
  • How long is your credit history? Generally, lenders prefer a seasoned credit history i.e. a credit track record of more than a year. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments, low balances and previous relationship with the lender.
  • How many and what types of credit accounts do you have?

Although it is generally good to have established credit accounts, too many loans and credit card accounts may have a negative effect on your score.

Scoring models may be based on more than just information in your application from and bank statements. For example, the lenders may investigate your credit reputation by contacting your employer, friends or neighbors. Lenders also look at your spending behavior. The model considers all these information for evaluation.

Ways to improve your credit ratings:

  • Immediately establish a budget in order to control your cash outflows.
  • Ensure that your income level permits an additional monthly outflow if you plan to take a loan.
  • Investigate your options in order to reduce your interest and other credit related costs, e.g., refinance an outstanding loan at fixed interest rates if there is a significant drop in interest rates or you discover a significantly cheaper option, etc. This will make your debt burden easier to manage.
  • Use some of your savings to repay some of your debt.
  • Always pay on time.



Credit scoring systems enable lenders to evaluate a number of applicants consistently and impartially on many different characteristics. There are pros and cons to the credit scoring system. On the plus side, it eliminates discrimination because approval is based on raw numbers. Although you may think such a system is arbitrary or impersonal, it can help make decisions faster and more accurately. On the other hand, the scores don’t take into account consumers who have exceptional circumstances. Still, you must understand how it works if you’re going to get it to work for you.

14 thoughts on “Need a loan? Improve your credit rating”

  1. If any bank refuses credit to any person are they required by RBI law to disclose the reason they refused credit to the individual?
    Can you please clarify?

    • There is no law as such, but generally the bank do inform the generic category of the reason for refusing loan. The banks can not disclose their credit norms and actual credit policies because it could be mis-used by others to artificially doctoring their applications and documents to take loans beyond their capacity and become a risk for the bank.

      Hope this would have provided you some clarity. In case you need any other input, feel free to leave a comment or contact us for private discussion of your particular case.

  2. Hi Shweta! Thanks for your post. Yes, credit rating is important ! In order for a bank to approve your loan, they will check your credit standing with other bank and if you have any history of delinquency. I used to work in a bank and we are actually making a careful deliberation if we are going to approve or disapprove a loan request. Well, first we will look in your proof of income if you really have the capacity to pay for your loan. Loan amount will also depends on your monthly income. Well, to maintain a good credit rating, you have to make sure that you are paying your debts on time. A full payer (transactor) is giving a good credit standing too!

    Hope this helps…. Have a great day! :")

    • Hi Marcy,

      Thanks for sharing your experience and inputs. Yes it certainly helps our readers to understand the process Banks and Financial Institutions follow before approving/disapproving your loan application.

  3. Hi Swetha,

    May I know how to find the CIBIL Default list and how to remove the name from the same.

  4. How do you improve your CIBIL rating if there are ols cheque bounce cases that happened 7-8 years back?

  5. Hi Shweta

    My name is Rajesh. Recently I applied for home loan from a private bank. I was shocked to see my name in CIBIL defaulter list with substantial outstanding. The bank informed me that the reporting bank reported my name in CIBIL last month only without any notice / information to me for a card which was closed more than six year back .
    Till date, I never had problem in getting loans & I have very clean record. But due to this my home loan get stuck.

    I want to know the authenticity & validity of this reporting after six years of closing the card that to without any notice / information.


  6. Hi,
    I am in Bangalore. I had a outsanding amount in my ICICI credit card 2 years backs (of INR 3000). I don't have any other loan or credit card other than this. I had settled this amount with the bank last year. Still any of my loan – home loan and new credit card application gets rejected saying bad credit ratings. Do i need to ask my bank (ICICI) to update my credit history? Is updating credit history, if you have paid the credit card bills, not done automatically? Now that i have no outstanding by home much will my credit rating improve.

    • The credit card settlement is updated in CIBIL. If you have fully settled your outstanding then the bank should update your account in CIBIL. You can contact the concerned bank and request them to make necessary update in CIBIL.

  7. Dear Sweta,
    My banking is completelu ruined up…
    Need a professional help in sorting out.
    Can I contact any particular person directly instead of sharing in public forum.


  8. hello shewta

    I have applied for a credit card in hdfc bank because there was approval of credit card on my saving account. After few days i have checked the status it shows this. DISAPPROVAL OF THE CREDIT CARD APPLICATION DOES NOT REFLECT IN ANYWAY ON YOUR CREDIT STANDING OR YOUR FINANCIAL STABILITY. can you please tell me why it has been rejected. And one more thing i have to tell u that i am having another bank credit card on that card i am having outstanding amount of 97,000 out of 1,20,000. From 2 months i am paying minimum amount of 15,000 because of this my credit card rejected or some other reason and does this effect my credit history. Paying minimum amount will effect credit history. How to improve credit history. plz need your help.?



  9. Unfortunately, I no longer leave in India – and after 7 Years after closing my old SCB credit card – one day received an email saying they could not able to reach me since 7 years and threatened a lawsuit for not paying the outstanding balance. After deliberately giving the details and the emails that luckily i have not deleted in these years – Thanks to gmail, SCB sent me response saying they are closing it now – which was supposed to be closed 7 years back and they will update the CIBIL in 45 days.

    The problem – until now which I do not know is – I am one of the defaulters in the CIBIL list.

    How can I make sure – my credit history in India is not corrupted, because of the half-baked credit system GOI and RBI has approved ? Legally in US – consumers have a right to get his/her own credit history once a year for FREE. Seems – we do not have this in India.

    Is there a PIL that can submitted for the good of all the honest people in India to maintain a good credit history ? Its a highway to identity theft as in US/UK and is multi-billion dollar industry to protect a person's identity.


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