When someone applies for a loan or any sort with a good credit score, they usually get lower interest rates and better terms on loans. Those who already have an existing loan must maintain the score to get better loan deals in the future. Using a Personal Loan EMI calculator helps plan the repayments according to the monthly budget and maintain a good credit score for long.
However, it is not easy to boost credit ratings overnight. You must begin with identifying the reason for a low credit score. Understand the circumstances that are impacting your credit score and work towards them to increase it gradually. Below, we’ll share some advice on how a credit score can be increased and how to make it happen.
- Look For errors In The Credit Report
The quickest way to improve one’s credit score is to review the credit report and find inaccuracies. These inconsistencies could severely impact your credit score. The credit score for a personal loan or any other debt will be raised almost immediately by disputing the errors and asking for their removal or correction.
Personal information inaccuracies, account errors, and erroneous accounts are all examples of errors in credit reports. Inaccurate information on the report raises a red flag and leads to the rejection of a credit application. Therefore, it’s crucial to keep an eye out for misreported payments, fake accounts, or double entries.
Most people do not regularly review their reports and are often surprised by the errors in their documents. That is why experts recommend checking the credit report at least once a year and ensuring everything is kosher. Each credit bureau is obligated to deliver one credit report annually for free. So, there’s nothing to lose when you request an annual credit report. Make sure to take some time and review it thoroughly.
2. Pay Off existing Loans Before Deadline
When you have extra funds to pay more than the fixed loan EMI, consider doing so. Chipping away the existing loans will significantly impact the credit score because it helps keep the debt-to-income ratio low. However, how quickly the credit score increases depends on how fast the creditors report the prepayment to credit bureaus. Some loan providers report it within days, while others take around a month. Borrowers may call the NBFC’s customer representative and enquire about their credit reporting schedule to the bureaus.
The sooner the debt can be paid off, the better. It also helps to keep the loan balance low and keep track of expenditures to make multiple prepayments toward the loan debt. Prepaying a portion of the debt will help, but settling the entire balance will have the biggest and fastest influence on the credit score of those applying for personal loans. Depending on the timing of the prepayment, the majority of loan providers impose a prepayment fee.
3. Increase Credit Limits
Credit utilisation rate is a crucial factor weighing heavily on an individual’s credit score. The percentage of available credit a person uses on average makes a significant difference. Carrying a balance exceeding 50% of the available credit limit might negatively impact the credit score. Therefore, maxing out the cards and credit lines will reduce the credit score.
One way to reduce the credit utilisation rate is to increase the available credit limit. For instance, when a person owes ₹ 2.5 Lakh with a ₹ 5 Lakh credit limit and gets the limit increased to ₹ 7.5 Lakh, the ratio will instantly improve. There are two ways to increase the credit limit: ask the credit card issuer to increase the credit limit. A higher overall credit limit leads to a lower credit utilisation rate if the borrower does not max out the monthly credit limit. Before asking for an increase in the credit limit, ensure you do not get tempted to spend more with the higher credit available.
4. Don’t Miss Payments
A person’s credit score is highly influenced by their payment history. Therefore majority of NBFCs require a minimum credit score for personal loans in order to evaluate the borrower’s repayment tendencies. You can build a solid history of on-time payments and boost your credit score. To have a decent credit score, people must make sure they do not skip or postpone their loan EMIs or credit card bill payments. Missed EMIs lower a borrower’s credit score since lending institutions notify credit bureaus about late payments.
As long as they do not overdraw the bank account, setting up automated payments is an effective way to prevent missing EMI payments. People must immediately contact the NBFC and seek help if they are having issues making their EMI payment.
