A credit score is one of the most important factors that banks or loan apps alike like mpokket consider before offering a loan to any customer. But, do you know why? This three-digit number reveals the creditworthiness of a borrower to banks and financial institutions.
For the unversed, credit score is evaluated utilizing your credit history, which includes information like your repayment behavior, payment history, number of credit cards or loans taken by you, etc.
A high credit score increases or enhances your chances of getting a high amount of loan, & a low credit score makes it difficult. Banks and financial institutions prefer not to sanction loans to people with poor credit scores as the possibility of repaying them is very low in those cases. However, loan apps might sanction a loan to people with poor credit scores, but that involves availing it at a higher interest rate. Naturally, nobody wants to avail a loan on those conditions to fulfill their fund’s requirements. Solution? Increase your credit score. If your low credit score is becoming an obstacle between availing personal loan on your terms, then follow these 6 smart tips to increase your credit score.
Tip #1: Clear Your Current Outstanding Dues on Time
Start with clearing your outstanding loan or credit card bills, if any, immediately to improve your credit score a little bit. Financial institutions like mpokket consider payment history of being one of the most important factors that are considered at the time of evaluating any person’s credit score. If you keep on missing your EMIs or miss the last due date of your credit card bill, your credit score will remain poor for a long period. The best way to ensure that you clear your outstanding dues timely is to set up a payment alert or just activate the auto-debit facility. In addition to this, most people commit the mistake of only paying the minimum due amount on their credit card. It is very much advisable not to do so since it will only increase your card’s outstanding balance. This can also result in your credit card being negatively affected. Hence, always try to pay full payment on your credit card.
Tip #2: Go Through your Credit Report
One of the best practices that you can do to improve your credit score is to go through or go via the credit report to see if there are any errors in that report. And in case you find any, get it rectified immediately. Since the credit score is evaluated based on the information mentioned in that report, it’s very imperative to check your credit report doesn’t have any errors.
Tip #3: Credit Utilization Ratio
The credit utilization ratio is another important factor that is considered at the time of evaluating your credit score. Credit Utilization Ratio or CUR refers to how much of your available credit you use at any given time. It is calculated by dividing or splitting the total credit card balance by your total credit card limits. The resulting percentage is used by most of the loan apps to understand the individual’s lending risk. Most experts recommend keeping their credit card utilization ratio below 30% as it gives off the image to lenders that you use credit responsibly and don’t rely on it too much. Bottom line: lower the credit utilization ratio, the higher your credit score will be.
Tip #4: Get a Loan for Consolidating Debt
If you are having difficulty in making repayment of your high-interest loans, then you can simply opt for a little lower interest personal loan from banks and loan apps such as mpokket. This will help you to convert your multiple EMIs into one single EMI and further help you to pay off your debt faster. This way, your credit score will increase significantly, provided you pay your dues consistently.
Tip #5: Select a Longer Tenure
When you opt for a personal loan or any other loan, select a longer tenure to repay the loan amount timely. Loan apps like mpokket offer personal loans with a repayment tenure of up to 60 days. This way, the loan EMIs will be less, and you will easily be able to make the loan repayment timely. By following this practice, your credit score will significantly improve.
Tip #6: Avail Different Types of Credit
Credit, if taken wisely, is one of the most helpful things you can do to improve your credit score because a person who has never opted for any type of credit will naturally have a poor credit score. This ultimately makes it difficult for such people to get loans. Therefore, it is suggested to mix different types of credit in your portfolio, which includes secured loans (like home loans, car loans) & unsecured loans (like credit cards, personal loans) for a long as well as short tenure to maintain a good credit score. This practice will certainly improve your chances of getting a high amount of loan at a low-interest rate.
Meanwhile, you can do a few or things to speed up the loan approval process. One of the common practices loan seekers usually do is demonstrate how they will pay for EMIs to the bank. Y seeing your low credit score, it is obvious for any bank or lender to doubt your paying capacity. If your current salary has been revised, or you have an additional source of income, show it to them, and they might consider your application for a lower interest rate. Even applying with a co-applicant or a guarantor who happens to have a higher credit score will benefit you for availing of a loan at a slightly lower interest rate.
In a nutshell,
If you want to build India a good credit score, maintain a good credit history by repaying your outstanding dues on time. With the aforementioned tips, you might not be able to improve your credit score immediately, but with consistency and some patience, you will certainly see a significant improvement in your credit score.