Have you ever known someone who needed money quickly but couldn’t get it from anyone and had to borrow it from a nearby moneylender? If you don’t want to end up in a similar situation or want to be ready for credit in the future, you must work on improving your credit score. Getting a better credit score takes time, just like everything else in life.
For those who don’t know, a credit score is the three digit number that credit rating agencies calculate and keep track of. It shows how trustworthy a person is with money. It means that you can pay back loans on time and not go into default. In India, if you check the cibil score, it usually ranges between 300-900. A credit score of 750 is considered good, a score of 900 is the best you can get, and a score of 600 or less is considered poor. So, if your cibil score required for personal loan is low, or you want to be ready for the loan in the future, the following tips will surely help:
Debt consolidation: You may have taken out more than one loan in the past, which may have cost you more in interest. It is hard to keep track of multiple due dates and loan payments at the same time. You might have forgotten the date of EMI in the past and not paid the loan amount on time, which could have hurt your cibil score required for a personal loan. So, if you have too many loans with different interest rates, you can take out a large personal loan and use the money to pay off the other loans. This is called “debt consolidation,” and it means that you will combine all of your loans into one personal loan.
Builds your credit history: Personal loans are a great way to build your credit history. Most of the time, longer credit history means that you have been responsible with credit. This will help your credit score and profile in some ways if you want to borrow more money in the future. Borrowing is important for building a credit profile because it helps you build a credit history, which is important if you want to raise your credit score and see the improvement when you check cibil score. If you’ve never borrowed money before, you won’t have a credit history to show your lender. Getting a personal loan is not a bad way to start building your credit history.
Paying everything on time: This point can’t be made enough since people often take this for granted. Paying back your loan or any other loan you took out on time can help you in ways you can’t even think of. For those who don’t know, paying back debts on time is a sign of good credit behaviour. It shows that you are responsible with your money, which will help your cibil score required for a personal loan in the long run. When you pay back an unsecured personal loan, it can have an even bigger effect on your credit score.
So, you should have a variety of loans under your belt. When figuring out a borrower’s credit score, the formula looks at all of the different kinds of credit they have. If you depend too much on one kind of loan, your credit score could go down, which is visible when you go ahead to check cibil score. Having both unsecured and secured credit in your portfolio can help you spread your risk.
Reduce your credit card debt- If the bank gives you a credit limit, and if you keep borrowing up to that limit and keep it exhausted, it will hurt your credit score in the long run. Getting a personal loan from the loan can not only help you out of a financial jam, but it can also help you improve your credit score by lowering your card debt.
Too many hard inquiries on your credit report: Before giving you a loan, lenders will look at your credit report to see if you are a good credit risk. Most of the time, one or two hard inquiries won’t hurt your credit score too much, but a lot of hard inquiries can hurt your score. When you check cibil score, the damage would be reflective. So, solution? Don’t be in a hurry to talk to different lenders about your personal loan. You can use loan aggregator websites instead. These sites will help you find lenders who have good interest rates and processing fees, good terms, and don’t charge much for things like prepayment. You can save yourself a lot of trouble and avoid hard questions this way.
Adding to debt instead of paying it off: We’ve already said that a personal loan should be used to pay off debt, not to take on more. If you already have a lot of debt, adding more debt will make it even harder to pay it off. It will look like you are not being responsible with your money, which will hurt your credit score even more.
We all know that how you use a personal loan can either help or hurt your credit score. You should make sure that you get a personal loan from the right lender. One might not know how to pick the right one. If you take out a personal loan with a high interest rate and other fees, it will only add to your debt. On top of that, you will be late on your payments, which will damage your cibil score required for personal loan even more. It’s important that you don’t just look at the interest rate but also at the other fees that are listed below it.
It’s noteworthy that while you’re learning how a personal loan can help you improve your credit score, you should also be aware of how it can hurt your cibil score required for a personal loan if not managed well.