When you apply for a personal loan, the most important factor affecting your eligibility and interest rate is your credit score. The higher your score is, the better your chances to qualify for a personal loan. But if your credit history isn’t exactly where you thought it would be, it’s all right. Here are some steps you can take to improve your personal loan credit score.
Pay bills on time
When you apply for a personal loan, lenders take a good look at your credit history to determine your reliability and capacity for personal loan repayment. If you want a good credit score (or want to improve it), start by paying all your monthly bills on time. Paying late, settling an account for less than what was decided, and other signs of unreliability will most definitely have a negative impact on your credit score. If you’re prone to forgetfulness, it is a wise idea to use tools like calendar reminders or automatic payments.
Pay off debts
If you make timely payments on your debts, your credit score improves. The same applies to your credit card dues. In fact, if you follow a timely and consistent repayment schedule from previous loans, chances are your credit scores will vastly improve.
Manage your balances
Another important factor that affects your credit score is how much of your credit card limit you actually use i.e., the credit utilization rate. The rate is calculated by taking the amount of revolving credit you have used and dividing it by the amount of revolving credit you have been assigned. Naturally, the higher your credit utilization rate, the more of a risk you are to a lender. It’s best to have a low credit utilization ratio than overuse it or not use it at all.
Don’t close unused credit cards
As long as it’s not incurring fees, keeping your unused credit cards open is a smart strategy. This is because closing an account may lead to an increased credit utilization ratio, which is not favourable to a good credit score. Hence, owning the same amount but having fewer open accounts may lower your credit scores.
Dispute inaccuracies on your credit report
You should keep a check on your credit reports for any inaccuracies as incorrect information on your credit reports could bring your score down. Always verify if the accounts listed on your report are correct and if you see any errors, dispute the records and get them corrected at the soonest.
The process of improving credit score is long and time taking, but not impossible. The sooner you address your credit issues, the faster your score goes up. Tata Capital offers highly reasonable personal loan interest rates. All you need to do is to visit our website, apply for a personal loan, fill out the necessary details and get quick approval with minimal documentation!