Your plans to celebrate Diwali with pomp and fervor can hit a stumbling block if your credit score is poor. Loan Singh’s digital lending platform allows you to easily apply for a personal loan with minimal documentation and quick disbursement. All this is for naught if you do not have the required credit score. Your credit score could be low for a variety of reasons – failure or delayed payments of EMIs, too many credit applications in a short span of time, or errors in your credit report, can portray a poor score. As you apply for a Diwali personal loan, it is of prime importance that you ensure your credit score is good enough to get you a personal loan.
A smart salaried individual is someone who embraces the financial mistakes of the past and then acts on it to correct them. Through this piece, we want to focus on people who have a low credit score and are certain to face a rejection. Let’s look at who prepares your credit report, why the score is so important, and how to turn it around.
Credit score check
There are 4 licensed credit information bureaus namely CIBIL, Experian, Equifax and Highmark. Out of these, CIBIL is the most accessed credit bureau. As the name suggests, a credit bureau is a bureau that houses your credit information. It maintains the information sourced from credit institutions such as banks, credit card companies, debt collection agencies and the government. Credit bureaus look at your credit repayment patterns to determine how much of a risk you pose to the credit lending institution. Whenever you go to a credit institution for fresh credit, a hard inquiry is raised by the institution to the credit bureau. The inquiry is basically a request to fetch your credit repayment history. The bureau then sends the history back to the institution in the form of a credit bureau report; with a compiled numerical score called credit score.
A credit score is a reflection of your monthly payments of loan EMI and credit card bills. It also considers the above mentioned hard inquiries. The score is accompanied with your personal information such as name, date of birth, residential address, corporate address, PAN, Voter ID, contact details along with figures for the loan amount, credit card limit, outstanding current balance, etc. Credit institutions consider your credit score while taking a decision on your loan application. A poor score means you are a potential risk. Because it gives an overall picture of your credit responsibilities in the past, it is a trusted system followed by credit institutions.’
Credit score ranges
The credit score has a minimum value of 300 and a maximum value of 900. The higher your credit bureau score, the better are your chances of getting credit from credit institutions like banks, digital lending platforms and credit card issuing companies. The credit score ranges are mentioned below
Score less than 0 – A credit score of 0, or less, means that you have no credit history. It is wise to apply for a personal loan from a digital lending platform because banks are likely to reject your loan application.
Score between 350-500 – A score between 350 and 500 is poor, indicating either a default in past EMI payments or excess credit utilization on credit cards.
Score between 550-650 – A score in this range is acceptable; it indicates that you have been regular with your payments and can be trusted for fresh credit. The chances of getting a loan approved are good.
Score between 650-750 – This range indicates that you are doing well with your finances. You should stick to your financial habits to maintain or improve your score. The chances of getting a loan approved are great.
Score between 750-900 – This is considered the best range for a borrower. This clearly indicates that you have been regular with your EMI or credit card bill payments. You can avail a loan with ease.
6 Tips to Improve Your Credit Score
By now you know how critical your bureau score is for your personal loan approval. Fret not! We now provide you 6 tips on how to improve your credit score.
Late repayments – This is easily the most important reason for a poor credit score. You must ensure that you repay your EMIs and bill statements on time – each month. If you don’t know which sudden expenses could come-up the next time, have some emergency funds in place. Set-up an auto debit feature so that your EMIs are directly debited from your account by the credit institution.
Maxing out your card limit – Keep your credit card spending at a low. Aim at spending only up to 40% of your limit. Don’t try to apply for a 2nd credit card if you are struggling with the first card itself. This will lead to a double jeopardy of rejection along with a hit to your credit score.
A Healthy mix of credit – You must ensure that you have a good mix of credit, i.e. a mix of personal loan, secured loan and credit cards. This tells the credit institution about your experience of servicing debt. In case you have no credit history, yours truly (read Loan Singh) will still approve your personal loan request.
Closing multiple cards at once – In case you own multiple credit cards, and are planning to close one or two immediately, do so at periodic intervals. Closing a credit card means closing that card’s repayment history, which will anyway reduce your credit score. Also, remember to close the newest cards first.
Avoid credit frenzy – Do not apply for fresh credit, at multiple institutions, within a short span of time. Too many inquiries, in a short span of time, will indicate desperation for credit and will affect your credit bureau score.
Check for errors – Apply for your credit report just before you want to apply for fresh credit. This way you will know which errors are present on your report, and you will have a chance to rectify it. Dispute the errors, and apply for a new report to see if the changes are updated by the bureau, or not.