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How to Improve Your Credit Score for a Two-Wheeler Loan

How to Improve Your Credit Score for a Two-Wheeler Loan

Your credit score can influence whether you qualify for a two-wheeler loan and the terms offered by the loan provider. A higher CIBIL score for a bike loan can improve your chances of approval and help you secure more affordable interest rates and favourable repayment terms.

A credit score of 750 or above is considered good and can improve your chances of getting quick and affordable financing for a two-wheeler in India.

A credit score is one of the most critical elements in determining the terms of your loan agreement and, in some cases, can even be the deciding element for your loan approval. In such scenarios, your credit score becomes your most significant financial asset. 

In order to purchase a two-wheeler in India, you have to maintain a credit score of 750 or above. If you have a very low credit score, it may result in the rejection of your two-wheeler loan application. However, you can take measures to improve your credit score.

Read on to learn about how to increase credit score for a two-wheeler loan.

What is a credit score? 

A credit score or CIBIL score is a three-digit number, usually ranging from 300 to 900, that is derived by analysing a person’s financial records, especially their credit history. It represents how well a person can handle all the money they borrow. 

  • A bike loan CIBIL score between 750 and 900 is considered excellent
  • A CIBIL score between 700 and 749 is considered good
  • A CIBIL score between 650 and 699 is considered average
  • A bike loan CIBIL score below 650 is considered poor 

What factors affect your credit score for a two-wheeler loan?

Several factors can influence your CIBIL score for a two-wheeler loan:

  • Repayment history: Whether you have taken loans in the past, and how soon and consistently you repaid them can affect your credit score. This includes the total amount you have borrowed over time, as well as your credit utilisation ratio, or how much of your available credit you are actually using at any given point.
  • Timely repayments: Repaying your current debts on time can positively affect your credit score. On the other hand, missing payments can negatively impact your score over time.
  • Types of credit: Having a varied mix of credit accounts, such as a home loan, education loan, car loan, personal loan, and credit card, can help lenders know that you can manage different types of debt responsibly. This may help improve your CIBIL score. However, it is important to ensure you repay all your debts on time.
  • Recent credit inquiries: Applying for too much credit within a short span of time can lower your credit score. It can make you look desperate and negatively affect your CIBIL score. Even if you have not defaulted on anything in the past, it is still best not to apply for too many loans or credit cards at once.

What are the credit score requirements for a two-wheeler loan?

The table below shows different credit scores and conditions of loan approval associated with them. 

Credit scoreLoan approvalLoan probability
Below 650It is unlikely that you will get your loan approved. If it is approved, the interest rates will be very high.10% to 20%
Between 650-700The lender may approve the loan based on conditions such as high income and loan amount.40% to 60%
Between 700-750Very likely.70% to 85%
Above 750High chances of approval with favourable loan terms.90% or higher

What are the top 6 ways to improve your credit score for a two-wheeler loan? 

There are several ways in which you can improve your credit score to get approval for your bike loan. These include:

1. Get your credit report and rectify any errors

The first step in improving your credit score is to obtain your credit report from trusted sources such as TransUnion CIBIL, Experian, or Equifax. Carefully review the report and check for any inaccuracies in it. They can be associated with personal information, account details, payment history, employment information, duplicate accounts, or incorrect overdue amounts. 

If you find any inaccuracies, file a complaint with CIBIL to rectify the error. Although inaccuracies in the report are quite common, they can unnecessarily lower your credit score.

2. Pay your bills on time

An easy measure to boost your credit score is to pay your bills on time. Pending or late payments of your utility or credit card bills typically negatively affect your credit score. You can even choose the automatic bill payments option or set calendar reminders to ensure your bills are never due. 

3. Clear outstanding debt

Punctual repayments of your existing debts reflect your financial discipline and a higher potential to handle new debts. To improve your credit score for a bike loan, ensure that your debts are always low and you have a history of consistent repayments. 

Prospective lenders closely analyse your repayment history while considering your loan application. For disciplined repayments, you can also set reminders of your due dates or opt for automatic debits to avoid missing any payments. 

4. Aim for lower Credit Utilisation Ratio (CUR)

Credit Utilisation Ratio (CUR) is the amount of money utilised from the credit limit. A higher CUR indicates that most of your expenses are made from your credit, and it reflects poor financial management. You must maintain a CUR of less than 30%, as a higher CUR can lower your credit score. 

If you are facing regular credit limit breaches, you can consider contacting your credit card company to increase the limit.

5. Mix up your credit

A diverse credit portfolio can boost your credit score. It involves having a balanced mix of secured and unsecured debts with both long and short tenures. A secured debt is one that is backed by an asset as collateral, while an unsecured loan is not tied to any asset of yours.  A diverse credit mix may include a couple of credit cards, personal loans, home loans or vehicle loans.

6. Limit new credit applications

Each time you apply for a new credit, you incur a hard inquiry or hard pull. A hard inquiry is a request by a lender to view your credit report when considering your loan application to evaluate your credit history. Too many hard pulls in a short span of time typically negatively impact your credit score as it could indicate that you are heavily reliant on new credit to manage your money.

How to get a two-wheeler loan with a low CIBIL score?

Here are some tips for getting a two-wheeler loan with a low CIBIL score:

  • Increase the down payment: If your CIBIL score is low, consider applying for a smaller loan amount and covering a larger portion of the cost yourself through the down payment. The lender may be willing to approve your loan despite the low score if the overall loan amount is not too high.
  • Find a co-signer: Another option is to bring in a co-signer, such as a spouse, parent, or sibling, to apply for the two-wheeler loan alongside you. However, make sure your co-signer has a stronger credit score than yours. Their creditworthiness may help offset yours and improve your combined chances of approval.
  • Negotiate with the lender: You can try negotiating the two-wheeler loan terms directly with the lender. Be upfront about what led to your low score, and reassure them that you can and will repay the loan going forward. You can show them income statements, proof of employment, etc. Lenders may be willing to work with applicants who are transparent.

The bottom line

A low credit score may prevent you from financing the bike of your dreams. However, following measures such as diversifying your credit portfolio, paying your bills and loan repayments regularly, maintaining a low CUR, and limiting new loan applications can gradually increase your credit score.
Once you achieve a good range of credit score, you can easily avail low bike interest rates or even a favourable loan tenure. If you have a two-wheeler on your mind that you want to finance, check out Tata Capital’s two-wheeler loan options for attractive interest rates and a hassle-free loan application process. For more information, head to the Tata Capital website or download our app!

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FAQs

What is a good CIBIL score for a bike loan?

A credit score of 750 or above has a high possibility of loan approval. Some lenders accept a CIBIL score of 650 or less but may charge high interest rates.

How long does it take to improve my credit score?

Maintaining a good credit history, a low CUR, and timely payment of debts can improve your score. However, this may take between a few months to a few years.

Can paying off a loan early improve credit score?

When you pay off a loan early, it reduces debt and improves your credit. However, that loan account gets closed, and closed accounts won’t impact your credit score.

What is the minimum CIBIL score for a two-wheeler loan?

The exact minimum CIBIL score can differ depending on your profile, income, repayment history, loan amount, and lender-specific approval policies. That said, a score below 650 is usually difficult to get approved with. So, it is advisable to aim for a score higher than that.

How fast can I improve my credit score?

This can vary from person to person. However, it usually ranges anywhere from 30 days to 12 months. It largely depends on how quickly you clear outstanding dues, how many pending credit accounts you have, and other factors like your repayment discipline and credit utilisation.

Which NBFC approves bike loan with low CIBIL?

NBFCs such as Tata Capital can approve two-wheeler loans even if you have a low CIBIL score. However, applicants with low scores must have a stable source of income. They must also demonstrate consistent repayment discipline and meet the lender's other eligibility conditions.

Where to apply for a bike loan with low CIBIL?

You can apply directly through the Tata Capital website or mobile app. Complete the quick eligibility check, upload the required documents online, and you will receive a quick loan approval. You can do all these without needing to visit a physical branch.

 

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