
How To Improve a Low Credit Score
A credit
score is a 3-digit number, which denotes credit risk associated with an
individual. Financial institutions check this score for an applicant before
approving or rejecting applications for loans, credit cards, etc. Thus, to
minimize the risk of facing rejection, improving low scores is a vital
objective for potential borrowers.
Along with
a chance of disapproval, there are quite a few other disadvantages of low CIBIL
scores. This includes higher rates of interest being applicable on approved
credit, shorter repayment tenor, etc. Consequently, it is advisable for
potential borrowers to check their free credit score and start improving it, if
necessary. Some of the convenient methods of improving CIBIL score are
discussed below.
Timely
repayment of dues
Be it a
personal loan or any other line of credit, timely repayment is vital to
maintain and improve credit score
for an individual. Every line of credit offered by a financial institution
carries default risk, which lenders balance by levying interest on it. With
financial institutions judging credit risk associated with individuals by
checking their CIBIL scores, any default or late payment of EMI or credit card
bill negatively affects this score.
To this effect, borrowers should set timely reminders and avoid missing any repayment
schedule. Notably, late repayments are also accompanied with penalty charges.
Maintaining
unused credit accounts
Unused
accounts like credit cards can be especially helpful to improve an individual’s
credit score. When an individual has an unused credit limit in his/her credit
card or other lines of credit, it denotes balanced credit usage and low risk of
default.
Additionally,
maintaining old credit cards also help in creating a longer credit history,
which also contributes to loan applications. Users of such cards can check
TransUnion credit score easily to notice any changes to their ratings.
Reporting
errors in credit score
It is
advisable for every individual to check their credit report and score
regularly, irrespective of whether they are about to apply for a line of credit
or not. Though rare, there always remains a chance of errors in credit reports,
which in turn can be detrimental during financial emergencies when an
individual applies for a line of credit. Anyone can check free credit scores
online by visiting the official website of CIBIL.
Avoid
settling existing lines of credit
While most
borrowers prefer to settle their existing lines of credit at their earliest
opportunity, it is advisable not to do so while trying to improve their CIBIL
score. Unless there has been an incident of default, settling repayments
usually have a negative impact on CIBIL score since it deviates from an
individual's existing financial planning.
For
individuals trying to avail a personal loan with low credit score, it is best
to maintain timely loan repayments, instead of foreclosure.
Refraining
from multiple loan applications
While
there are quite a few methods, which suggest how to get a personal loan with a low credit score, it is advisable not to apply
several times when the first application faces rejection. Continued attempts
for loan approval after rejection usually leads to a hard pull on credit
reports by a financial institution. Notably, multiple hard pulls lead to
depreciation of CIBIL score and therefore it is advisable to avoid it.
Increasing
credit limit
While It is quite easy to check free credit scores online, its improvement usually takes
quite a bit of time. Interestingly, increasing the credit limit on a credit
card has a comparatively faster effect on CIBIL scores. Ratings show signs of
improvement within a few months if credit bills are repaid on time.
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Potential
borrowers can employ any of these methods discussed above to improve their
credit score. Once an individual has a good score, he/she can easily avail
loans by offering necessary documents and meeting other criteria.
Generally,
renowned financial institutions that provide pre-approved offers,
which make availing loan prompt and easy. Such pre-approved offers are provided
on numerous financial products like personal loan, education loans, business
loans, etc. You can easily check your pre-approved offer by providing personal
details like name and phone number.
It is advisable for borrowers to plan their repayment before applying for a loan.
This helps in maintaining and even improving an individual’s CIBIL score with
timely repayment. Every borrower can check their free credit score periodically
to note if it is improving with their timely EMI clearance. Potential borrowers
should learn how to calculate personal loan EMIs using a personal loan
calculator and apply for a loan sum with convenient terms of repayment.