If your personal loan application is getting rejected repeatedly or you are getting a very high interest rate, the reason may be in your credit score. Banks and loan companies look at this three-digit number to determine whether you are eligible for a loan. But there is no need to panic. By making just a few small changes, you can improve your score and get a loan at a better interest rate.
Why is a good credit score important?
If your score is 700 or higher, you get loan offers from more banks. The process also becomes easier – less documentation, faster approval and lower interest rates. That is, a good score means easier loans.
Learn the 3 most effective ways to improve your score now:
1. Pay bills and EMIs on time
The biggest reason for a falling credit score is late payments or missing EMIs. Be it a loan, credit card or utility bill – make every payment on time.
- Set up auto-debit so you don’t forget anything.
- Pay the minimum balance on your credit card.
- With consistent, on-time payments, your score starts improving within 2-3 months.
2. Don’t exceed your credit card limit.
If you use more than your card limit, the bank thinks you are in financial trouble. Try not to let your credit utilization exceed 30%.
- If you have a large balance, pay it off quickly, preferably before the statement date.
- Avoid maxing out your card. If you’re going to pay the full bill, that’s a different story.
- Balanced usage shows banks that you use credit wisely.
3. Be sure to check your credit report.
- Sometimes the reason for a drop in score is incorrect information or outdated entries.
- Get a free report from CIBIL, Experian, Equifax or CRIF High Mark once a year.
- Check if there is an old closed account, someone else’s default, or incorrect information.
- If there is an error, file a complaint online immediately – it is often resolved within a month.
Valuable suggestions
Don’t close old good accounts. Don’t apply for multiple loans or cards at once. If your credit history is short, start with a small secured loan or credit-builder product.
