Your credit score reflects your creditworthiness and therefore, lenders look into it when assessing your credit card or loan application. Having a high credit score of at least 750 increases your chances of getting a credit card or a loan. In fact, with a high credit score you also stand a chance to secure loans at lower interest rates. However, having a low credit score can hinder your chances of availing credit when you need it the most. Even if you manage to secure a loan, it will most likely be at a higher interest rate. If you have a poor credit score and want to improve it then you must check out the following points diligently to steadily improve your credit score:
- Set Standing Instructions/Reminders to Pay Your Dues on Time
Missing or delaying your loan EMI or credit card bill payments negatively impacts your credit score. It also attracts penalties and other additional charges, thereby, increasing your debt burden. Hence, you must always make your loan EMI and credit card bill payments by their due dates. If you have a hard time remembering your loan EMI and/or credit card bill due dates, set reminders or add Standing Instructions (SI) to your bank account from where a fixed amount shall be deducted monthly. In credit cards, even if you are unable to pay the full amount due, try to at least pay the minimum amount due so that the non-payment of total dues does not get reflected in your credit report. Even though the remaining unpaid amount will start incurring interest for the billing cycle, you will get an additional cycle to clear off your dues and prevent your credit score from falling.
- Avail a Secured Credit Card
It is hard to secure a loan or a credit card with a low credit score. However, without using credit responsibly, you cannot improve your credit score. In such a case, the best option for you is to get a secured credit card, also known as credit card against fixed deposit. Lenders don’t consider credit score when approving for secured credit card applications. Hence, you can secure it easily from the bank with whom you maintain your fixed deposit account. Once the card is issued, use it responsibly by timely paying the bills to steadily rebuild your credit score. Using secured credit cards comes with various other benefits about which you can read at credible financial news publications and/or personal finance blog websites like Finshastra to make an informed decision.
- Avoid Making Multiple Credit Applications within a Short Span
Whenever you apply for a loan or a credit card, lenders pull your credit reports from different credit bureaus to check how you have dealt with credit in the past. Such lender-initiated requests of credit reports are known as hard enquiries. These enquiries get reported in your credit report. Having occasional hard enquiries in your credit report won’t have a big impact on your credit score. However, making multiple hard enquiries within a short span can lead to a sharp decline in your credit score, eventually leading to loan or credit card application rejection by the lender and/or card provider. Thus, those planning to avail a loan or a credit card should first visit online financial marketplaces to compare offers from multiple lenders and card providers and then make the application with one or two lenders and/or card providers. Credit report requests raised through such marketplaces are considered as soft inquiries and therefore, comparing offers from such marketplaces won’t affect your credit score.
- Avoid Closing Old Credit Card Accounts
Lenders trust applicants having old credit accounts with good record of payment history. So, in case you have an old credit card account, don’t close it even if you no longer use it. Doing so may not have an immediate notable impact on your credit score. However, it can present you in a positive light when lender a assesses your credit report during the loan process in future.
- Track the Guaranteed or Joint Loan Accounts Regularly
Applicants unable to meet the eligibility criteria might be asked to get it co-signed or guaranteed by a co-applicant having better credit profile. Doing so reduces the lending risk of banks and NBFCs by ensuring that if the primary borrower defaults on the loan, the guarantor or the co-borrower will fulfil the loan obligation. This makes both the borrower and the co-applicant or the guarantor equally liable for repaying the loan. During the loan tenure, if any of the loan EMIs are delayed/missed, the credit score of both the borrower and the co-signor/guarantor would take a hit. So, if you are a co-signer or a guarantor for a loan, monitor its EMI payments regularly and discuss with the borrower in case of default in the repayment.
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