In the present times, which are full of financial uncertainty, your savings alone cannot suffice in offering you adequate protection against unforeseen expenses. It indeed is essential for you to have an access to different credit products offered by multiple financial institutions, namely Personal Loan, Credit Cards, Education Loan, and more. These credit facilities allow you to handle the financial exigencies with ease without exerting any pressure on your finances. Though the lenders have eased the eligibility criteria for different types of loans and credit facilities, yet your profile plays a crucial role in fulfilling the bank’s credit policy.
One of the most important parameters considered by the financial institutions while ascertaining your creditworthiness is your credit score. Most financial institutions will not accept your loan application if your credit score does not meet their specified criteria.
Your credit score is a numerical representation of your creditworthiness assessed by a credit rating bureau. Multiple factors are considered to calculate your credit score such as number of active loans, repayment history, credit card usage pattern, number of loan applications submitted in the recent years, and several others. Each factor is assigned a specific weight by the bureau to arrive at a final credit score. In India, credit scores are given out of 900 by the bureaus. There are multiple credit bureaus in India, but CIBIL rating is one of the most sought after.
Credit scores out of 900 are generally categorized as per below-mentioned criteria: –
Usually, lenders require you to have a credit score of 750+ from CIBIL but can accept your application if your credits score is 700+. Anything below 700 is a red flag for them, and it would require you to prove your financial capabilities through other documents so that loan application is accepted. If your credit score is below 700, then you must work to improve your credit score before Applying for a Loan or Credit Card.
To create awareness regarding healthy credit practices, RBI has allowed every individual to access his/her credit report from any credit bureau for free, once a year. You must use this opportunity to check your credit report. This will allow you to ascertain your credit score and help you understand the reasons behind the low credit score. You can then follow the steps mentioned below to improve your Credit Score and enhance your eligibility for a loan or Credit Card in 2019:
This might seem like a rudimentary step to you, but as a matter of fact, many individuals have found out factual errors in their credit reports. These errors could be pertaining to a loan that was not availed by you or incorrectly showing an outstanding amount. These errors can lower your credit score for no mistake of yours. So, make sure that you check your credit report thoroughly, and in case you find any errors, bring them to the notice of the bureau.
As you dispute the error, the credit bureau will then take up the matter with the respective financial institution and get it resolved within 30 working days. If it is revealed during the investigation that there was an error on the part of the financial institution, the entry will be removed from your credit report, and your credit score will be improved.
If you were unable to pay your bills on time in the past, let it become history. From now on start paying your Credit Card bills and EMIs for other loans on time. Moreover, you must pay your phone bills, utility bills and all other dues on time. The best action plan is to set all these payments on auto-debit from your bank account so that you do not forget about them. Any late payments on EMI reflect poorly on your Credit Report for as long as seven years. By paying your bills and EMIs on time, you can slowly but surely improve your credit score.
Your credit card utilisation ratio has a significant impact on your credit score. You must ensure that it stays below 30% across all your Credit Cards. The optimal credit usage reflects that you are a responsible borrower and can handle credit well. If required, avail a low-interest Personal Loan to pay your multiple credit card debts. This will reduce your interest expenses, make your loan accounts more manageable, and will significantly Improve your Credit Score.
Every time you apply for a loan or a Credit Card, the lender initiates a hard inquiry into your credit report. If there are multiple inquiries over a short period, it reflects your hunger for credit and will reduce your credit score. So rather than applying at multiple places, shortlist the lenders with whom you have a better chance of success and then apply with them only.
If you are using some Credit Cards for many years, then it is advisable to continue using them instead of Applying for New Credit Cards. The older your credit line is, the better it reflects on you as a responsible borrower and ultimately improves your credit score.
If your low credit score is coming in the way of you getting a new credit line, then you must opt for a secured credit line. Herein, you are offered a loan or Credit Card against a Fixed Deposit you maintain with the bank. This covers the entire risk of the bank, and they will issue you a Credit Card or sanction a loan easily. Use this opportunity to make timely EMI payment or bill payments, and gradually, this financial discipline will start reflecting on your credit report.
A low credit score closes the window of opportunity for you to access credit facilities easily and at low-interest rates, which can jeopardize your financial freedom in the long run. So, act like a responsible borrower and follow healthy credit practices to maintain a healthy credit score and enjoy great financial flexibility.
Also Read : How Personal Loan Can Improve Your Credit Score?
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