How to Improve Your Credit Score to Get Better Loan Deals?

When a person seeks a loan from banks or financing institutions, the most important parameter for approval is borrower’s credit score (usually 750 or above) and income. If you lack the required credit score, your chances of getting a loan can diminish. However, that doesn't mean, you cannot get a loan at all. There are some lenders that also provide financial services to people with poor credit score, but if you have poor or zero credit score, you will have to pay high interest rate for the loan.

To get best loan deals from the renowned lenders, above average credit score is a must parameter. Even if your credit record is not in a good shape, you can always improve it. Before disclosing the tips that you can follow to build or improve our credit score, you need to understand the difference between poor credit score and no credit score.

If you have no credit history, i.e. you never took a credit and your credit record is blank, then the chances are that you have "no credit score". However, if you have defaulted or missed a few EMIs of loan repayments in the past, your credit score may fall into the category of "bad credit score".

So, now that you know how a bad credit score is different from a no credit score, you can consider these tips to establish or improve your credit score so that next time you apply for a loan; you can the best deal from the lender:

·      Check out your credit card balance regularly: See how much credit you are actually using from your entire revolving credit. Make sure that the percentage is smaller to improve your credit rating. Pay off your credit card balances on time. If you have to pay balances of multiple credit cards, consolidate them all into a single personal loan to reduce interest rate and improve your credit score.

·      Don't remove your old debt from credit report: Once people pay off their credit completely, they try to get it erased from their credit report. If there is any negative item in your credit report, it will disappear after seven years. However, if you have good debt, i.e. you have handled your debt well and paid it as agreed; it can help improve your credit score. So, keep it in your books.

·      Limit your expenses: Use your credit card amount responsibly. Don't exhaust the entire amount available to you. If you're planning to make a bigger purchase such as a home or a car, take a loan amount that you can afford to pay conveniently. Otherwise, you may miss the payments or default, which can drastically impact your credit score.  

·      Buy and use Credit Cards:  If you want to build a credit history in short term, buy a Credit Card, and start paying bills regularly. Credit Cards are the fastest way of building a credit record.

·      Check your Credit Report regularly:  Make sure you check your credit report regularly. If you find any error, like wrong personal details, and incorrect payment information, get it rectified immediately with the credit bureau. Incorrect information may lead to wrong credit score and mar your chances of getting a loan approval. You can get your credit report for free (one time) from any Credit Bureau including CIBIL, Equifax Credit Information Services Pvt. Ltd, Experian Credit Information Co. of India Pvt. Ltd, and High Mark Credit Information Services Pvt. Ltd.

·      Opt for a Balance Transfer or consolidate all your debts: If you are paying higher interest and EMIs on your existing loans, you can opt for a balance transfer (transferring your due loan amount to another loan account) for a lower interest rate and/ or lower EMIs. For example, if you have multiple credit card debts going on, you can consolidate them under one single personal loan, or if you have multiple ongoing debts including a home loan, you can consolidate them under a home loan, thus reducing the interest rate and making them more affordable.

Following the tips mentioned above, you can build or improve your credit record within a short time span. Building a reputed credit score is essential if you are applying for the loans with attractive terms and interest rates. Applicant’s credit history is not the only criteria considered by the lenders to make a lending decision. They may also analyze applicant’s salary, job, stability, and assets (such as a property) to take a final call. However, if you have a poor credit score, you can still avail a loan with lower limits and higher interest rates as there is a greater risk associated with them.

Make sure that if you have availed a loan with bad credit score, you start repaying timely. Doing this can help you repair your credit history, and soon you can become creditworthy in the eyes of the lenders and can avail better loan schemes.