5 Tips To Improve Your Credit Score Before Applying For A Personal Loan

Credit Information Bureau (CIBIL), India’s primary credit information provider, has been crucial to the nation’s financial system since 2000. This Credit Information Bureau compiles consumer credit histories from licensed companies, determining credit scores. As the main agency in India, CIBIL plays a pivotal role in shaping individuals’ financial profiles and lending decisions for personal loans across the country.

What Is A Credit Score?

Your credit score is a numerical snapshot of financial reliability. It depicts your credit history as a single figure. High scores unlock doors, signalling responsible debt management. Lenders reward these borrowers with easier approvals and better rates. This powerful number shapes your financial future, reflecting past money choices at a glance.

Scores range from 300 to 900. Banks do not prefer a score below 700. A score of 700 is considered good. Typically, scores of 750 and above lead to loan approvals.

A low score, however, limits access to credit and raises costs. It makes borrowing difficult.

How To Raise Your Credit Score

You must pay attention to your credit score, especially if it is low. It is wise to boost your score for easier, cheaper credit. Below are the top strategies on how to increase CIBIL scores.

1. Make Prompt Bill Payments: Even with a low credit score, pay your bills on time to avoid defaults. Be mindful of online payment processing times. If paying by cheque, deposit it days before the due date. This ensures timely payment, even with unexpected delays.
2. Using Credit Cards Sensibly: Credit cards are useful financial tools. They offer ample credit, air miles, and reward points. They also allow cashless travel, reducing the need for ATMs. However, these benefits require responsible use. Avoid maxing out your credit limit monthly. Additionally, do not close a credit card without your provider’s No Objection Certificate (NOC).
3. Get The Ideal Balance Of Secured And Unsecured Loans: Unsecured loans, like auto and personal loans, can lower your credit score. Meanwhile, secured loans, such as home loans, help build assets and improve your score. To raise your credit score, try to reduce unsecured debt.
4. Examine Your Credit Report: If your credit score is low, get your credit report from CIBIL immediately. Then, check it for accuracy. If you find errors, report them to CIBIL to protect your score. Also, ensure your bank or credit card issuer reports your timely payments to CIBIL.
5. Refrain From Applying For Too Many Loans: Applying for loans at several banks prompts credit checks. Each bank sees your credit report, suggesting you might need money urgently. CIBIL records all these checks. More checks lower your credit score. So, limit them and check your score often. A low score means higher loan rates. Instead of many banks, focus on those with the best rates. Before applying for a loan, use a personal loan calculator to estimate your monthly payments and determine how much you can afford to borrow.

Boosting your credit score before a personal loan application is key. It ensures better terms and increases approval chances. The above points significantly improve your creditworthiness. Acting now enhances your financial health and builds confidence with lenders.