Individuals and businesses often set goals and targets. These goals can be financial or personal; to achieve them, funds might be required. One can apply for a loan if these funds are not readily available. Loans can be provided for different purposes like a housing loan, personal loan or education loan. Many banks and financial institutions offer loans which can be crucial financial aid in times of need.
To apply for a loan, there is a process that needs to be followed. Banks usually ask for certain documents to verify the loan's details and purpose. Apart from the documents, banks also check an individual's credit score before lending them money. The credit score, also called the credit rating, is a score which indicates an individual's creditworthiness and ability to repay the loan. A score is a three-digit number ranging from 300 to 900, with 900 being the best score possible.
Your score significantly impacts banks' lending decisions. A good score will assure the bank that the individual will repay the debt they make timely payments. Therefore, borrowers need to ensure that they have a good score. Here's how you can improve your credit rating. Before improving your score, an individual can take a free credit score check on CIBIL's website. A score below 650 is average, and a score below 550 is considered poor.
Steps to improve credit ratings
Timely EMI payments
Credit cards and loans allow individuals access to funds, which can be repaid through monthly instalments. Equated monthly instalments are used for the repayments in which a debt is repaid. An individual needs to make these payments on time and avoid any delays to improve your score.
Customise credit limit
A credit limit is the amount of credit a bank provides to you. The ratio between the utilised amount and the available credit can affect your credit score. The credit limit can be reduced to minimise expenses. This provides a better credit utilisation ratio and will prevent an individual from maxing out the credit limit.
Avoid debt
It is not advised to take on too much debt simultaneously. Taking multiple loans shows that the individual is in a debt trap and that you lack the necessary funds. An individual should repay a loan before taking another. Multiple loans at the same time can negatively affect your credit rating.
Check CIBIL report
At times CIBIL may make errors while updating your report. An individual can take a free credit score check and find their CIBIL report on CIBIL's website. They can go through the report and rectify any errors that may be present in the report.