Bad credit score holding you back? 4 proven tips to boost your rating


Your credit score is extremely crucial when it comes to determining your eligibility for borrowing funds. Lenders pay high attention to  your credit score as it helps them understand your financial situation and also evaluate your creditworthiness. 

Your credit score gives a general overview of your credit history as well as your capability to repay the loan on time. In this article we are going to understand what a low credit score is and how you can significantly increase it. 

Understanding low credit score 

A credit score is roughly a three digit number which is calculated based on your credit history, your income, employment and many other factors. The credit score ranges from 300 to 900. The higher the credit score the better are your chances of getting your loan approved at your desired terms. A credit score is considered to be low if it is lower than 650. This mainly happens due to defaults in repayments and poor credit history. 

Lenders usually do not prefer granting loans to individuals with a low credit score as it increases the risk of getting their money back on time especially in the case of an unsecured loan. In secured loans, the risk is comparatively lesser due to collateral. 

In case of low credit score, there are high chances that you will be ineligible to apply for a loan, however, if you do qualify for a loan, you may not get the desired amount at your preferred interest rate and repayment tenure. 

CIBIL Score Range Rating
300-500  Poor
550-600 Average
650-750 Good
750-900 Excellent

Reasons for having a low credit score

Failure in repayment: If you had previous loan EMIs or credit card bills which you failed to repay on time, it can significantly impact your credit score as it shows that you are not regular in making payments on time.

Closing credit cards frequently: Opening and closing credit cards very frequently can depict that you are not in a stable financial position and may be facing constraints because of which you may not be able to repay the bills on time.

Maxing out the credit limit: Credit cards usually provide you a credit limit based on your financial position as well as your credit history. Using credit cards can become a habit due to its easy usage and can make you spend unnecessarily. With this you may end up maxing out the limit and taking debt more than you can actually afford.

Also Read | Secured vs. Unsecured Personal Loans: Which one should you choose?

Improving credit score

You must first understand the fact that you can not increase your credit score overnight. However, with gradual and continuous efforts, you can significantly increase your score over time. Here are some steps through which you can improve your credit score and get loans at your desired terms:

Taking the right credit: If you have a low credit score, then your options for borrowing funds will become less. However, it is important to analyse your needs and understand which credit is suitable for you and can align with your pocket.

Keeping a track of your repayments: Being regular in repaying your bills and EMIs is extremely crucial in order to increase your credit score. Hence, it is important to have a note of all your repayments and pay the bills on time.

Taking secured loan: Secured loans are easier to get when you have a low credit score as it is comparatively a safer option for lenders due to collateral. Hence, if you are in need of funds and also want to improve your credit score for future borrowing, then a secured loan can be a great option to consider.

Avoiding multiple credit applications in a short time: When you make a hard inquiry frequently, it is usually considered that you are in a financial crunch and are in dire need of funds. This also implies that you may not be able to repay the loan on time and might become a defaulter. Hence, it is important that you avoid filling too many applications or credit score enquiries and take credit only when you really require it.

Also Read | How to create a financial plan on your own? Here are 6 key steps

Conclusion

It is important to note that credit score mainly reflects your borrowing and spending habits. Hence, if you want to improve your credit score, you must make changes to your spending habits and make informed decisions on borrowing funds. Being consistent is extremely important if you want to improve your credit score. Hence, always borrow only when you can repay the amount on time.

In the case of credit cards, while they do provide you great offers and deals, it is important to understand that credit cards have risks and may lead to debt traps if you fail to spend within limits. Hence, always be mindful of your spending habits and borrow wisely.

Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

MoreLess



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

Prayer Times