Your credit score is the measure of your financial health. Before lending you any funds, the lenders refer to your credit score. It is an important element in your life as credit companies gauge you on the basis of your credit score.
Your credit score is crucial as it impacts your financial health in a big way. For example, a good credit score would help you quickly qualify for instant credit loans. Also, with an excellent credit score, you can get a loan at a low-interest rate. Alternatively, poor credit scores can cause you difficulty in getting funds during an emergency.
In today’s day and age, getting a personal loan has become a common thing. However, with the loan becoming tough to get, it could get troublesome to finance any of your needs.
What is a credit score?
A credit score is a three-digit number that shows the rating of your credit report. It also throws light on your approach to handling debt. Almost all the Indian finance industry lenders use credit score as a benchmark to meter your financial appetite.
Various credit rating agencies make sense of your credit reports to come at your credit score and forward it to different financial institutions. Your credit score can fall in any one of the different ranges established to deduce your creditworthiness.
Different rating agencies may assign you different credit scores. The reason for differences in scores is different methodologies used by various credit rating agencies. Also, different rating agencies rating you at different times, so there can be a difference in score due to that as well.
You can’t track your credit scores from all the rating agencies. So, it is better to keep a tab on only the scores produced by well-known agencies that are accepted by all types of lenders. Tracking one or two top credit rating agencies gives you an overall idea of your performance, debt-wise.
What does your credit score mean?
Credit scores are computed after considering many different factors. They decide how easily you will get approval for your debt requests. What a credit score does is it tells your lenders about the quantum of risk they would have to bear on approving your credit request. You can check where on the spectrum you lie by checking your credit score online.
Your credit score dominates your risk profile in the following ways:
- A credit score between 750 and 850 shows your responsiveness towards your debt component. A score in this range suggests that you have been careful in making your debt repayments
- Again, a credit score in the field of 700 to 750 is rated as above average by the rating agencies
- Most individuals have credit scores in the field of 600 to 750. You may get a personal loan with this score
- If you have a score of less than 600, it is highly difficult to get a personal loan
If you have a low credit score, you must start working to improve your position. You can start by reaching out to your lenders. Then, you can create a favorable payment structure and address all your debts with proper planning.
It is important to note that credit scores are just a prediction rating. They are designed to indicate your likelihood of making timely repayments to the lenders. So your credit score keeps a check on your misdemeanors towards making repayments.
When does one face credit score rejection?
Getting approved for a personal loan with a low credit score by banks or instant loan apps is tricky. At times, your loan application gets rejected because of your credit history.
If you have a low CIBIL score and want to improve it, you must know the primary causes for a low credit score. In addition, you must know ways to improve it to get approved for a personal loan of your choice.
Below are listed the causes and ways to improve a low credit score.
Primary causes for a low credit score
A low credit score can get your loan rejected. Below are the primary causes for a low credit score:
- High credit usage: It negatively impacts your credit score when you use over 75% of your credit limit. You have to keep a check on your expenses and be mindful while handling multiple loans at a time to maintain your credit score.
- Numerous outstanding loan payments: Before approving your instant credit loans, lenders tend to look into your financial history. And when you have a low credit score with multiple outstanding debts or payments, your loan application eventually gets rejected.
- Applying for a loan even after facing rejections: Keeping on applying for a loan on instant loan apps even after getting rejected once won’t help your credit history. Once you apply for a loan and face rejection, that information gets stored in your credit report. So, when you apply for a loan with a new lender in hopes of getting loan approval, the lender will come across this information. The creditor will also see your low credit score and reject your loan application again. This can lower your credit score even more.
Ways to improve a low credit score
A low credit score can’t let you avail loan in times of need. But there are ways by which you can eventually enhance your score.
Here are the ways to improve your credit score and successfully apply for loans on instant loan apps:
- Refrain from applying for multiple loans simultaneously: Are you the one who has the habit of keeping numerous loans at a time? If yes, then you must look at consolidating them and turning them into a single loan. This will make it easier to make loan repayment with possibly a lower interest rate and help improve your credit score. Having numerous loans at a time is a prime cause that lowers the credit score. Consolidate and clear multiple debts to increase your credit score.
- Do not miss or delay any loan payments: Ensure that you pay your EMIs and credit card bills on time. As delaying or missing repayments can reduce your credit score exponentially.
- Check your credit report from time to time: Checking your credit report will determine whether your credit score is improving or plummeting. Sometimes, your score may stumble because of an error. So, when you inspect your credit score periodically, it makes you aware of the information fed in your credit report. This gives you a chance to fix your low score.
- Limit the use of your credit card: Reaching the credit limit and using multiple loans every time can cause your credit score to plummet. Keep in mind that you do not just have to pay the minimum dues but also clear the entire debt. This idea can help you improve your credit score.
It is vital to identify previous errors in borrowing money and not repeat those mistakes to increase your credit score. In addition, a good credit score will help you get easy approvals eventually for all future personal loans.
While getting instant credit loans with a low credit score is challenging, it is not unrectifiable. Keep in mind the causes mentioned above and solutions to reap results.
It is important to note here that improving a credit score is a long process. It takes at least a few months before you can start to see improvements in your credit report.
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