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.