Maximising your credit history for better loan amounts
Your credit history is a crucial factor that lenders consider when assessing your eligibility for a loan., Having a good credit score and history can increase your chances of getting approved for a loan and can also help you secure better loan amounts with lower interest rates. It is a reflection of your creditworthiness and financial responsibility. Lenders use your credit history to determine the amount of loan you are eligible for, the interest rate, and the repayment terms.
However, many people in India are unaware of the strategies they can use to improve their credit history and ultimately get the loan amounts they need. In this article, we’ll provide tips on how to maximise your credit history to get better loan amounts in India. Whether you’re a first-time borrower or looking to improve your credit score, this blog will provide you with the information you need to make informed decisions about your financial future.
Tips to maximise your credit history in India
Here are some tips to help you maximise your credit history to get better loan amounts in India:
Understand your credit score
The first step to maximising your credit history is to understand your credit score. Your credit score is a three-digit number that ranges from 300 to 900. The higher your credit score, the better your chances of getting a higher loan amount. A score above 750 is considered excellent, while a score below 600 is considered poor.
There are four credit bureaus in India that provide credit scores: TransUnion CIBIL, Experian, Equifax, and CRIF Highmark. You can obtain a free credit report from each of these bureaus TransUnion CIBIL, Experian, and Equifax once a year. Moreover, it’s important to check your credit report regularly to ensure that there are no errors or inaccuracies that may affect your credit score.
Build a positive credit history
If you have a poor credit score, it’s important to start building a positive credit history. This can be done by taking some small loans and repaying them on time. You can also use credit cards responsibly by making timely payments and keeping your credit utilisation ratio low.
Another way to build a positive credit history is to become a co-borrower or a guarantor for someone who has a good credit score. This will help you establish a credit history and improve your credit score.
Maintain a good credit utilisation ratio
Your credit utilisation ratio is the percentage of your available credit limit that you are using. It’s important to keep your credit utilisation ratio low, as a high ratio can negatively impact your credit score. Ideally, it should be below 30%.
To maintain a low credit utilisation ratio, it’s important to use your credit card responsibly. And you should avoid using your credit card for unnecessary expenses and try to pay off your balance in full each month.
Pay your bills on time
One of the most important factors that affect your credit score is your payment history. Late payments can have a significant negative impact on your credit score.Therefore, it’s important to pay all your bills, including credit card bills, loan EMIs, and utility bills, on time.
In addition, if you have a hard time remembering due dates, you can set up automatic payments or reminders. It’s also a good idea to keep a record of your payment history, so you can dispute any errors or inaccuracies on your credit report.
Avoid applying for multiple loans at once
When you apply for a loan, the lender will perform a hard inquiry on your credit report. This can temporarily lower your credit score. If you apply for multiple loans within a short period, it can have a significant negative impact on your credit score.
Avoid defaulting on loans and credit cards
Defaulting on loans and credit cards can have a significant negative impact on your credit history. It shows lenders that you’re not responsible with credit and increases the risk of them not being able to recover their money. Further, if you’re struggling to make your loan or credit card payments, you should contact your lender immediately to discuss your options.
It’s important to apply for loans only when you need them. And, before you doing for the same ensure that you meet the eligibility criteria and you can afford to repay the loan on time.
Examples of how to maximise your credit history
Let’s take a look at some examples of how you can maximise your credit history to increase your chances of getting approved for a higher loan amount:
- Example 1: Ramesh runs a small business and wants to apply for a term loan to expand his operations. He has a good credit history with a credit score of 800, but his credit utilisation ratio is high at 70%. To maximise his credit history, Ramesh pays off his credit card balances and reduces his credit utilisation ratio to below 30%. He also checks his credit report and notices an error in his loan repayment history. He contacted the credit bureau and had it corrected, improving his credit score even further. As a result, Ramesh is able to secure a higher loan amount at a lower interest rate.
- Example 2: Sujata is a freelancer who wants to apply for a personal loan to purchase a new laptop. She has a credit score of 700 and a low credit utilisation ratio, but she has a history of late payments on her credit card bills. To maximise her credit history, she sets up automatic payments for her credit card bills and ensures that all her bills are paid on time. She also checks her credit report and notices that her address is incorrect. To correct this, she contacts the credit bureau and rectified the same thereby, improving her credit score. As a result, Sujata is able to secure a higher loan amount at a lower interest rate.
To sum up
Maximising your credit history is an important step in getting approved for a higher loan amount in India. By following these above-mentioned steps and maintaining a good credit history, you can increase your chances of getting approved for a loan at a lower interest rate. It’s important to remember that building a good credit history takes time and effort, but the benefits are well worth it in the long run.