A recent study involving around 1500 individuals showed that more than 60% of the respondents know that a good credit score increases the chances of getting loan approval. However, only 15% of the participants knew their credit rating. Studies also suggest almost 85% of the Indian population carries a credit score of less than 800.
A credit score is a three-digit number which helps determine your creditworthiness. It ranges from 300-900, and a score of 750 or higher is considered better. Credit information companies like TransUnion CIBIL calculate the rank after looking at your credit history. If you have been responsible with your finances, repaid all your loans in time, never missed paying EMIs or any credit card bills, you will have a high credit or CIBIL score.
A good credit score makes you more eligible for a loan. Financial institutions will offer you higher credit, and you can also negotiate the interest rates on personal loan when you apply for an advance.
Credit score will decrease if you fail to repay a previous loan, or if you haven’t availed credit before. Fortunately, there are some easy steps you can follow to improve your credit score.
Here are 5 tips to raise credit score and ease up the process of availing a personal loan.
1. Use your credit cards wisely – Financial experts suggest using only a portion of your total credit card balance to improve your CIBIL score. Credit utilisation is inversely related to the score. Keeping the usage less than 30% will help boost the rating.
Also, remember to use only 1 or 2 credit cards. If you have multiple credit card dues, use a personal loan to consolidate the debts.
2. Repay old debts in a pre-defined manner – Repay your existing debts on time to show a potential lender that you are capable of handling your finances. Paying the interest in a timely schedule can improve your CIBIL score.
If you are in a financial crunch, avail a personal loan and use it to consolidate existing debts. Many financial institutions such as offer low interest rates on personal loan, quick disbursal of the money, and easy to meet eligibility criteria.
3. Maintain a credit mix – It is advisable to maintain a good credit mix to increase your CIBIL score. Experts suggest maintaining a balance of secured and unsecured loans; lenders can take a negative approach on your creditworthiness if your credit portfolio contains multiple unsecured loans.
4. Do not miss on any payments – Another way of improving your credit score is to pay all your bills on time. It impacts your credit rating positively, and lenders consider you as financially responsible. Your personal loan eligibility will improve. Also, you will not be subjected to late payment fees or any other charges.
Also, always pay the bill amount in full. Generally, credit card bills have a minimum due amount. If you only pay that, the remaining amount will appear as overdue, and hamper your CIBIL rating.
5. Build a credit age – Credit age of five years or more is considered decent. Your credit score will improve if you maintain a good credit age for an extended period. It also gives you more time to fix your late payments.
Building or improving the CIBIL score takes time, but it’s not difficult if you plan your financial management strategically. Easily meet the other eligibility criteria for a personal loan once you obtain a good credit rating.