The credit score, also commonly known as the CIBIL score, is a three-digit numerical representation of your credit history. It indicates your creditworthiness and ability to repay loans. The credit score has become crucial for several financial services, especially if you are applying for a new loan or a credit card.
The CIBIL score ranges between 300 and 900. You have a better chance of obtaining a loan or credit card if your score is higher.
Poor scores fall between 300 and 549, whereas fair scores fall between 550 and 700. A credit score of 800 or above is regarded as extraordinary, while a score of 740 or higher is regarded as very good. However, the classification of credit score categories may differ as per the policies of the credit bureaus.
Though it’s not impossible to secure a loan with low credit score, some lenders may charge higher interest rates. The banks and NBFCs always prefer borrowers with high credit score while approving loan applications. A credit score of 750 and more is often preferred by lenders.
Easy ways to improve credit score quickly
It’s always advisable to maintain a high credit score. One can improve their credit score by avoiding excessive debt, paying down amounts, and making on-time payments. Here are seven simple methods to raise your credit score, with information on their potential effects.
1. Choose Longer Loan Term
Try choosing a longer repayment period when taking out a loan. This will guarantee a low EMI, allowing you to make timely payments. Your credit score will improve when you do not miss, postpone or default on your EMI payments.
2. Lower Credit Utilisation
It is recommended that credit card holders should not use more than 30% of the available credit limit. The more you can minimise your credit utilisation, the better your credit score will be. Lenders will see this as an indication of good credit management.
3. Maintain Older Credit Cards
You should continue using your old credit cards as long as you can make on-time, complete payments of your bills. This will help you establish a strong and long-lasting credit history, and it will help you improve and keep your credit score high in the future.
4. Refrain from Taking Multiple Loans at Once
Applying for multiple loans in a short period of time may cause your credit score to drop since lenders may view it as an indication of financial instability. One should take out as few loans as possible in a given time frame and pay back one loan before taking out another.
5. Set Payment Reminders
Your credit score can be significantly impacted by how well you pay off your outstanding debt. As a result, one must continue to be disciplined when it comes to making EMI payments and should avoid paying a penalty fee and have your credit score lowered.
6. Steer Clear of Being a Guarantor
Being a guarantor carries some risk because your credit score will suffer if the primary borrower defaults. You should only accept such arrangements if you are confident in the borrower’s ability to repay and their financial stability.
7. Verify and Correct Any Errors in CIBIL Report
CIBIL may sometimes update your records incorrectly, which will significantly lower your credit score. Therefore, it is important to periodically review your CIBIL report. This will help you in locating errors and fixing them through the online submission of a CIBIL dispute resolution form.
Improving credit score needs financial discipline and a sincere approach towards payments of outstanding loans or credit card dues. With simple steps and a prudent money management strategy, you can improve your credit score quickly.
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