In the world of borrowing and lending, your credit score holds more importance than anything else. If you are looking to borrow credit in any form such as a personal loan, a car loan, a home loan, or even a credit card, the lender will pay close attention to your credit score and history before they decide to approve, or reject your request. In India, Credit Information Bureau Limited (CIBIL) is the company responsible for collecting your credit information such as credit card payments, loan repayments, etc. This information is shared with lenders when you approach them with a credit request. Your credit report (CIBIL Score) will showcase your loan/credit card repayment history which provides a lender with valuable information pertaining to your repayment habits. Considering this, it is quite obvious that if your credit score is low (below 750), you may either be rejected for the loan or may get it at high interest rates. A high credit score, on the other hand, will not only get you low rates, but also clear your path for getting approved for a credit request in the future.
A low credit score is nothing short of a curse. If you are ever in a situation where you need to borrow some funds from a bank or are looking to apply for a credit card, the first thing the lender will do, after receiving your application, will be to check your credit score and repayment history. As mentioned before, a low credit score is most likely to lead to a rejection, or at best, get you a loan at an exorbitant interest rate, which is no better. However, all is not lost. Your credit score can be easily revived if you keep a few important things in mind. Here are some words of advice which will help you on your way to restoring your credit worthiness.
Take a closer look at your credit report and CIBIL scores
The first step towards building your credit score is to check your credit report or CIBIL scores for any errors. Go through your report with a fine toothed comb, and check for expenses which have caused your score to dip. Technical or human error can often lead to an incorrect score being reflected on your report. For instance, a loans that has been paid off, but still reflects as due in your account, can cause your scores to dip. To ensure that your report is not riddled with errors, do check your report regularly.
Clear your monthly payments on time
Did you know, your loan/credit card EMI repayment track record makes up for almost a third of your CIBIL scores, check more in bankbazaar credit score section. When it comes to improving your credit score, time is can be on your side, if you play it wisely. If your credit card bill is due on the 3rd of the month, make sure you pay it well before the due date, instead of waiting till the very last day. There are times when CIBIL scores change on a day-to-day basis, in which case, even a dayâ€™s delay in making a due payment can greatly harm your credit health. Making your due payments well in advance is a sure shot way of improving your credit score quickly.
Keep your credit usage in check
If swiping your credit card recklessly is causing your credit score to plummet, you must immediately discipline your credit card usage. Not only must you monitor your purchases but also try to pay for them in cash than with your credit card. After all, it is a well-known hack that one tends to think twice about making a purchase if they are paying for it in cash. Also, just because your lender has allowed you a high credit limit, doesnâ€™t mean you have to max out your credit card. This is one of the biggest causes of low a credit score. When it comes to credit limits, make sure that you donâ€™t go over 50% of your permissible limit, if you want to restore your credit scores to the 750+ range. This essentially means that if your card carries a spending limit of Rs.1 lakh, limit yourself to spending up to Rs.50,000 using your card.
Limit your loan/credit card applications
If you have applied to multiple banks/lending institutions during a short period of time, it can lead to suspicions regarding your credit standing. In other words, this might make you look like you are desperate to get credit, and can have a negative impact on your credit score. Every time you approach a bank/lender for a loan or a credit card, the same gets recorded in your credit report and will be accessible by future prospective loan providers. Frequent credit requests can lead lenders to begin doubting your repayment capacity or worse, offer you credit at sky high interest rates. Also, if your credit application has been rejected once or twice in the recent past, wait for a short while before applying again. In the meantime, try to repair your credit score instead of applying again.
Donâ€™t deactivate old credit card accounts
If you have an old credit card account, do not deactivate it! Many people are unaware of the fact that that a good credit card account maintained in the past can greatly help boost your credit score. If you have had an old credit card account which you no longer use but one which shows a good history of timely payments, I can work like magic! If you have any history of a good credit score, make sure you hold on to it, and try to keep it active, if possible.
Avoid taking too many unsecured loans
There are two types of personal loans which are available â€“ secured and unsecured loans. Secured loans are offered against a security, while unsecured loans are offered without the borrower having to provide any form of security or collateral. If you are in the market for a personal loan, try to limit taking unsecured personal loans as they may present your financial standing in a negative light. When applying for a personal loan, try balancing secured and unsecured loans. Also keep in mind, credit cards are considered as unsecured credit, so limit your applications for them as well.
This article has been produced by TNM Marquee in association with BankBazaar.