Your credit score is a three-digit figure that represents your borrowing worthiness. Do you repay your loans on time? Have you used a substantial quantity of credit in your financial history? Is there a good chance you’ll fall behind on your payments? Your credit score provides answers to these queries. When you ask for a loan, lenders such as banks and financial institutions examine your credit score and credit profile before approving your application. Your credit score not only determines your ability to borrow, but it also affects the interest rate you will be paid. This is especially true for small Personal Loans and fast loans, for which no collateral is required.
Limit difficult enquiries
When you apply for a loan, a potential lender will conduct a hard investigation as one of the initial steps. The lender examines your credit report to evaluate whether to approve you. A hard inquiry has a minor negative impact on your credit score because it momentarily lowers your ranking. So, before you formally apply for modest Personal Loans, fast loans, or other types of borrowings, do your homework. You don’t want to risk a harsh enquiry for a potentially declined application.
Make your EMI payments on time
If you have additional debts, make sure you pay your Equated Monthly Instalments (EMIs) on time. Repayments have a big impact on your credit score. If your credit history reveals that you were not extremely attentive about repaying your loans on time, it may affect your future borrowing potential. Even if you successfully repay your existing loans before applying for a new one, your history of late EMI payments will remain on your credit report.
Reduce your credit utilisation ratio
At any one time, your credit utilisation rate is computed by dividing the amount you owe your lenders (in loans and credit card payments) by your entire credit limit. The lower this proportion, the higher your credit score. It is preferable to have a credit utilisation ratio of 30% or below. A low ratio suggests that you are adept at credit management. Avoiding credit card debt is one strategy to improve your credit utilisation percentage. Another thing you may do is pay off your debts as soon as possible.
Make on-time payments on your utility bills
Your payment history for utility bills has an impact on your credit score. If you put off paying your phone bills, internet bills, and other utility bills until you receive a reminder, you are jeopardising your credit score. Set up phone reminders to remain on top of your monthly utility and cell phone bills. Even if you use apps that allow you to use services right immediately and pay later, you must assure fast payment before the deadline.
Keep a healthy credit mix
Your credit portfolio should include a healthy balance of secured and unsecured borrowings, as well as long-term and short-term obligations. If you’ve taken out too many huge loans in the past, opt for small Personal Loans or fast loans in the future if you need to cover an unexpected need. Alternatively, if you have never borrowed money before, you will not have a credit history. You can start building a credit profile by obtaining a credit card to finance your routine expenditures. To avoid poor credit ratings, make sure you pay your credit card bills on time.
Avoid taking on too much debt at once
Taking on too much debt in a short period of time is not the best way to improve your credit score. It may work against you and harm your credit score. Taking out many loans will indicate to a potential lender that you are trapped in a never-ending cycle of insufficient finances. It also implies that you are already swamped with EMIs to repay, making it difficult to obtain a new loan. The ideal course of action is to obtain one loan, repay it completely, and then consider borrowing again if necessary.
You may increase your credit score in the long run by incorporating these behaviours into your spending pattern and following these guidelines. This makes obtaining a loan later in life easier. Another option you can use to boost your credit score and creditworthiness is Bajaj Finserv’s credit builder programme. And, once you’ve reached a healthy credit score, keep in mind that the same habits that helped you build your credit profile will help you keep it. Apply for loan at Bajaj Finserv today.