3 Tips to Improve your Credit Score for a Low Interest Personal Loan
Having a good credit score is important for loan applications. Your lender will consider your CIBIL score to evaluate your creditworthiness. The CIBIL score is calculated based on yourrepayment history and debt to credit ratio. A higher credit score can help you to qualify for personal loans with low interest rates. This is because in such acase your default risk is lower for the bank.
If you have a lower credit score, know that there are ways to improve it. Here are 3 tips to do so.
Tip #1 Cover Your Dues on Time
Pall your dues on time. Set reminders to pay credit card bills and EMI payments before the due date, so that you don’t default due to a hectic schedule. You can also set up e-mandates through internet banking facilities for recurring payments to avoid missing deadlines. When you settle outstanding debt properly and quickly, it reflects positively on your credit score. On the other hand, if you have to pay penalties for delays, it lowers your score.
This is why it is always best to choose loan terms according to your repayment capacity. Your EMI structure needs to complement your income levels. This is to ensure you can comfortably repay your debt without defaulting. Use a personal loan EMI calculator before application.
Tip#2 Don’t Apply for Too Many Credit Lines
Speaking of personal loan applications, it is good to not apply for too many loans at a time. While opening a new credit line increases the credit limit, it also leads to the creation of a hard inquiry on your credit report. A hard inquiry is a detailed study of your credit profile by the lender, to see your creditworthiness.
Multiple hard inquiries in a short period negatively impacts the credit score. Moreover, a hard inquiry followed by loan rejection causes further damage. This is why you need to considerthe eligibility requirements for personal loans, and the terms and features offered by the bank before applications. Proper research can increase your chances to get the lowest personal loan interest rates.
Tip#3 Pay Attention to the Credit Utilisation Ratio
Consider maintaining a balance in your credit behaviour. For instance, not using a credit card at all means a lack of credit historyand a low credit score. At the same time, using more than 30% of your credit card limit can be damaging for the credit score. There are a few ways to go about this:
- Maintain older credit cards to build a strong and lengthy credit history
- Get in touch with your provider and consider customising your credit limit based on your requirements
- Maintain a healthy mix of credit options. Choose a combination of secured and unsecured loans of varying tenor to build a strong credit score.
Credit scores can take time to improve. It is necessary to be persistent in your efforts. If you include some of these habits in your daily life, you can increase your chances of getting a personal loanat low interest rate.