posted on 2020-05-11 12:32:58 by Admin
Credit Score is one of the factors that financial institutions consider before lending the funds. So, maintaining a good credit score is a healthy habit a borrower must follow. A credit score is a three-digit number between 300 to 900 summarising the credit history of the borrower. Having a 700+ credit score is a good indicator to clear the eligibility for the loan. To make the loan application for a personal loan or any other loan approved, it is recommended to have a credit as high as possible. So, to improve the credit score from 600 to 750, read the 5 step guide for the score improvement.
A credit score is calculated based on your credit score. It shows how responsible you were during your previous loan tenure. In India, there are four agencies recognized by the Reserve Bank of India that calculates the credit score. These are Equifax, CIBIL, CRIF Highmark, and Experian. Credit scores from any one of these institutes are valid. Though banks generally use the CIBIL score to evaluate the credit score.
As a responsible borrower, you must pay your repayments on time. Any missed EMI or other irregularities can reduce the chance of loan clearance. So, as a first rule, always pay your EMIs on time to maintain a good record.
The credit score ranges from 300 to 900, so a score above 750 is pretty safe for the clearance of loan application. Any score below this can lead to rejection of the application or a higher rate of interest. Even if some banks or NBFC ready to offer the loan with a low credit score, it will come with strict terms & conditions and high EMIs.
Regular EMI payments are key to improve the credit score from 600 to 750. On similar lines, there are some factors which lower the credit score. Some of them are manual changes in the documents, swindled reports, loan rejections, excessive use of credit cards, defaults in the past, high credit utilization ratio, and most importantly high debt to income ratio.
The importance of improving the credit score is unsaid. If you recently have a credit score of 600, then improving it by 100-150 is a good idea. Since you have already decided to improve your score, the battle is half won. For the rest, practice these methods to improve the credit score.
Consistent Good Credit History
There is a chance you were not able to pay the repayments on time due to unforeseen situations. Which led to a red flag on the credit report. Since you can’t remove that from the report but can always work ahead by repaying the loans on time.
This will show you are putting efforts to keep a good credit history. As this process will continue, the bad history will fade away. It may take a long time to get the trust back but still, it will help in the long run.
As a good financial planner, always make sure that you take a loan only when you have resources to pay it back. Keep track of the EMI dates, prioritize it, and pay the EMI on time. Also, keep the use of credit card limited.
Pro Tip: Use the EMI Calculator to plan your financial liability of the loan.
Reduce Loan Burden
If you have lots of loan accounts, then try to close them as soon as possible by paying all the required amounts. Having multiple loans not only reduces the credit score but also burdened with a lot of EMIs. A person can use the service of loan transfe rto take advantage of low EMIs.
Pro Tip: Don't make multiple queries regarding loans in the short span with the banks. First, compare the interest rates online, then apply in the short-selected financial institution.
Clear Credit Card Balance
A lender always checks the credit card usage. An applicant with high credit rating utilization and balance on a credit card reduces the chance of a high credit score.
Always pay your credit card bills and don't keep balance on the credit card. Try to reduce the credit card usage. Develop a healthy habit of buying on debit. Make a proper plan of expenditures as per the monthly revenue. So, working on this factor will help to improve the credit score from 600 to 750.
Also, if you are exhausting the credit card limit every month, it will show as excessive use of credit. For this, either increase your credit limit or limit credit utilization. Close the credit card with a bad history by paying the applicable amount.
Pro Tip: Don’t get enticed with many credit card options, choose one with the lowest EMI option. Utilize a maximum of 70-80% of your credit card limit.
Clear Errors in the Report
There are chances that there are some errors in the credit score report. So, in case, you do not agree with the information, then inform the authority and rectify it. Report immediately in case of suspicious activities as well if done from your account like stolen credit card etc.
Pro Tip: Be vigilant and keep track of your account performance.
Sometimes an applicant is not able to repay the loan and asks the bank to give some more time. In this situation, financial institutions will give some time off and will ask to pay a loan in one go. In this scenario, the loan will be considered settled and not closed. This will also reflect poorly on the credit report. So, instead of for loan settlement, ask your bank to relax the EMI option and keep paying it instead of taking some time off.
Pro Tip: Opt for a secured loan to get funds at a low-interest rate.
Doesn't it seem hard to improve credit score from 500 or 600? Yes, a bit and requires little patience as well. But if the long term benefits are analyzed then all the efforts will pay off soon.
● Low-Interest Rate- Having a good credit history will help your case to get the benefits of a low-interest rate. A bargaining power you can use with the financial institution.
● High Credit Limit - Since banks now have trust in you, they might increase your credit limit of loans as well.
● Quick Approval of Loans - Banks usually clears the loan fast after checking the creditworthiness of the applicant.
● Credit Card- As you have a credit score above 750, the lender may issue you a credit card with a high limit as well.
Don’t get confused between Credit Score and CIBIL score. They are more or less the same. A credit score is the 3 digits numeric number explaining your past credit performance. It is released by the four institutions recognized by RBI.
CIBIL score term is specifically used for credit score released by Credit Information Bureau (India) Ltd. The CIBIL score report contains the details of the past loan, credit history, etc, and if you have paid them. The reports have details related to PAN, account details, address, name, etc. Whenever there is a loan application, the lender informs the CIBIL, and details get registered in the report.
Pro Tip: Check your free CIBIL score from CIBIL official Website. If it is low, then first improve the score and then apply for the loan facility.
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