The credit score ranges from 300 to 900 and is the reflection of an individual’s creditworthiness. The higher the score, the more reliable he/she is as a borrower and vice versa. Every individual who has availed credit will have a score.
Financial institutions, almost in all cases of lending, rely on this score of a prospective borrower to determine the degree of risk that an individual carries. It is more so in the case of unsecured credit facilities like a personal loan or credit cards. Since lenders do not have any collateral to fall back on in case of an unsecured loan, credit score forms a vital eligibility parameter.
Credit rating agencies like TransUnion CIBIL consider various aspects of an individual’s credit report to compute a value that defines them as a borrower.
Facts about credit score
- 650: Score below which most financial institutions do not sanction a loan or credit card
- 750: The standard value above which financial institutions consider advancing a credit facility
- 850: Prominent score implying high credibility of a borrower
What are the ways to improve credit score?
There are multiple ways in which you can maintain your good credit score, whether you are new to the credit market or a veteran. The methods using which you can improve your credit score are –
1. Clear outstanding debts
One of the principal grounds on which agencies like CIBIL compute credit score is by factoring in the total value of outstanding debt against your borrower profile. These debts encapsulate existing EMIs on loans and credit card bill dues. The higher the value of debt, the more it results in a low CIBIL score.
Therefore, one of the primary things you can do to improve your personal credit score is to clear your current dues. The same would positively reflect in your score. By how much the score will go up might depend on the value of debts you cleared.
Additionally, try to clear dues in full, instead of paying only the minimum amount to evade paying the penalty, as it adds a brownie point to your borrower profile.
2. Check credit report frequently
Your credit report consists of all the information pertinent to your borrower profile – from your past repayment habits to current dues against your name. Based on this report, credit bureaus compute your score.
Hence, you must regularly check your credit report to note any discrepancies in it. If you find any inconsistencies in your report and the actuality of those, immediately inform the authorities about the same to concerned authority. Overlooking such errors will result in a low CIBIL score that can affect your eligibility for credit facilities.
- A study shows that 51% of credit-conscious millennials with a score below 700 managed to register an increase of the score by 65 points within 6 months of checking their reports and CIBIL score.
3. Avoid discontinuing prior credit accounts
It is vital to understand that old accounts add to the extensiveness of your credit history; the longer the history, the better your score.
Consider keeping old credit cards, which you do not use, active since it lengthens and fortifies your credit history. Bear in mind that a good credit score can assist you to get better terms on loans for used cars or other purposes and hence its significance is unparalleled. You can check free credit scores across multiple platforms as well to stay abreast of its progression or regression.
4. Keep a low credit utilisation ratio
A credit utilisation ratio is determined from the percentage of your credit card limit that you use per billing cycle. For instance, if your card limit is Rs.10,000, and you used Rs.5,000 in a month, your utilisation ratio is 50%.
Financial experts advise keeping this score below 30% to ensure a positive impact on your credit score. Hence, monitor your spending thoroughly, especially if you have multiple credit cards, to ensure that you spend 30% of your card limits only.
5. Avoid multiple credits at once
Refrain from applying for multiple credits at once. At the same time, do not apply with several financial institutions at one time as it results in multiple enquiries from their end that affects your credit score.
Nonetheless, the process of improving the credit score can be lengthy, especially if you have a low score. In that case, you need to know how to get a personal loan with a poor credit score. You can consider a collateral asset to avail the loan.
The CIBIL score for a personal loan is 750 or above across multiple leading financial institutions. Usually, NBFCs like Bajaj Finserv prefer customers with a high credit score and offer an attractive rate of interest.
The company also provides pre-approved offers to minimise the time required to avail financing. Such offers apply to personal loans as well as credit cards, business loans, and several other financial products. You can check your pre-approved offer by providing your name and phone number.
By following the steps mentioned above diligently, you can increase your credit score in a short span of time. Having a good score also enables you to receive lower interest rates on both unsecured and secured loans.
Author Bio: This article has been shared by Gaurav Mittal who is a Content writer and he loves to write about Finance & Insurance Articles.