Loans serve as great financial aid when in need of funds – be it an education loan for your child’s brighter future, a business loan for your new venture, a car loan, a Home Loan for a lavish purchase, or a personal loan to meet medical emergencies. However, to enjoy the perks, one has to have a good credit score. Read on to know how to achieve a good credit score or maintain one at a high level.
Importance of a Good Credit Score
While credit score plays a vital role in a loan application, most borrowers overlook the importance of credit companies or bureaus. However, lenders largely rely on credit bureaus when evaluating loan applications. Therefore, credit history may limit your access to credit, which will significantly affect your finances. Nevertheless, there are simpler ways to ensure that you have access to credit whenever needed.
For any type of loan, the lender usually considers 750+ as the ideal credit or CIBIL score. However, the credit score margin is divided as follows –
| CIBIL Score | Creditworthiness | Loan Approval |
|---|---|---|
| 750-900 | Excellent | Excellent |
| 700-750 | Very good | Very high |
| 650-700 | Fair | Good |
| 600-650 | Poor | Difficult |
| Less than 600 | Very Poor | Low |
How to Maintain Good CIBIL Score
There is no surefire formula to achieving a high CIBIL or credit score – but there are certainly a few tips that could prove helpful. Here is how to maintain a good credit score.
Precise Credit Details
If you already have credit cards and loans, you should retrieve your credit score and information report to make sure that all the details are reflected accurately. Any inaccurate or negative reflection of credit history may adversely affect your credit score, which is a key factor for loan evaluation. Your CIBIL score may further be affected if the credit history reflects as late or non-payment of dues.
Make Corrections
In case of inaccuracies, feel free to rectify your credit history. Borrowers must be aware that the credit company will take up the dispute request with the lender to assess the accuracy.
EMI to Income ratio
The EMI to income ratio is a benchmark that many lenders use to evaluate whether or not you are able to service additional debt. A ratio exceeding 0.5 signifies little or no access to credit. On the other side, the lower the EMI to income ratio, the better your chances of getting the loan approved.
Pay Your Loans Timely
One of the many ways to make sure you pay your debts on time is to set up electronic reminders. If you’ve missed payments, you can still keep track of it. Try not to default on payments if you already have an existing loan or dues since that will give out a negative impression to the lender.
Avoid Reaching Your Credit Limit
Ideally, credit usage should not exceed 30% of the credit limit. Be sure to pay the balance every month.
Crosscheck Credit Reports
Long Credit History
CIBIL scores in India are based on experience rather than on time. The more experience your credit report shows, the more information there is to ensure whether or not you are capable. Applying for a huge credit in a short period of time implies to the lender a sudden change in your economic condition.
Crosscheck Credit Reports
Keep an eye on old credit card accounts that are not in use. In case of suspected errors, be sure to get them corrected.
How to Check CIBIL Score?
To check and ensure a good credit score, you can simply follow these steps –
- Visit the lender’s website to track the CIBIL score
- Enter personal details – address, mobile number, email ID etc.
- Register yourself using the OTP received on your email/mobile number
- Check the credit score on the screen
- Apply for personalized loan plans based on the credit score
In a nutshell, the CIBIL score is one of the key factors in determining one’s creditworthiness i.e. whether or not the borrower is capable of repaying the loan amount on time. The higher the score, the better the chances of loan approval. In case you are wondering how to maintain CIBIL score, track your credit information regularly to ensure a good and accurate credit score in moderation.
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