2 min read.Updated: 17 Sep 2021, 12:22 PM ISTLivemint
Many lenders have also started considering credit scores as part of their risk-based pricing practice, while setting interest rates for their loan applicants
Hence, those having higher credit scores have greater chances of availing loans at lower interest rates
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NEW DELHI :
Generally, if you maintain a credit score of 750 and above, it is considered a good score. Individuals having such scores are considered more creditworthy by the lenders, and hence, have higher chances of loan or credit card approval. Many lenders have also started considering credit scores as part of their risk-based pricing practice, while setting interest rates for their loan applicants. Hence, those having higher credit scores have greater chances of availing loans at lower interest rates.
However, if your credit score is low (that is below 750), can you still improve it and reap benefits. Here are ways one can improve one's credit score:
Check your credit report for errors: Credit bureaus use data related to one's current outstanding debt, past credit account, EMI payment, new loan and credit card applications, etc. while calculating a credit score. So, any clerical error on the part of the bureau or lender, or any fraudulent credit applications or transactions made in one’s name can adversely impact the credit score. The only way to detect such errors or fraudulent activity is to review the credit report. One should report such errors or frauds, if any, to the concerned credit bureau or lender for rectification. Once rectified, the report will automatically reflect an improved credit score.
Avoid direct loan enquiries with lenders: Radhika Binani, chief product officer, Paisabazaar.com said, "Whenever one applies for a loan or a credit card, the lender fetches the credit report of the applicant from the credit bureau to evaluate his or her creditworthiness. These lender-initiated requests are considered as hard enquiries and each reduces the credit score by a few points. Hence, those planning to avail loans or credit cards should use online lending marketplaces to compare various credit options as credit report requests initiated by them do not reduce their credit score."
Repay your debt by the due date: Of all the factors used for calculating a credit score, the repayment of loan and credit card dues is widely believed to receive maximum weightage. Hence, timely repayment of credit card dues and EMIs in future would steadily improve the credit score.
Keep credit utilization ratio within 30%: This ratio is the proportion of the total credit limit availed by an individual. One should try to contain this ratio within 30% as exceeding it makes one look like a credit-hungry person and thereby, less creditworthy. Binani said, "If one’s credit utilization ratio frequently exceeds the 30% level, one should request the card issuer to increase his credit limit or should opt for an additional credit card."