Whether you are applying for an auto loan, home loan to buy a new house or planning to finance your university fees, there is one thing that every lender will check strictly before approving the loan and that is your credit score. Yes, you heard it right! You just cannot escape from it or even ignore it. Having a good credit score not only make it easy for you to get a loan but also ensure that you get a decent rate of interest.
Your credit score is the credibility that you have built throughout the years and it will be the first thing that any lender will see when you apply for an installment loans in the India. To understand it simple and plain words just take it like that- the higher is your credit score the better will be your chances to get the loan. So, you must be thinking “how would I know about my credit score?” Well, there are various portals and agencies that can provide you with your entire financial report along with your credit score.
According to Financial Conduct Authority (FCA) guidelines, this is what it means if your credit score range between:
- Very poor: 0-560
- Poor: 561- 720
- Fair: 721-880
- Good: 881-960
- Excellent 961-999
So, the higher is your credit score, the more trustworthy borrower you will be in front of the lender. Now, let us see what are the factors that affect the credit score of any person?
Factors Deciding the Credit Score of a Borrower
- Payment history: This is one of the main factors that affect the credit score of a person. If you pay all your rents and bills on time, the more you will be trusted by any lenders. On the other hand, if you keep piling up your bills and keep delaying it, then it will be affecting your credit score drastically.
- Total amount owned: The next important thing that determines your credit score is the total amount you own. By the total amount, not only the loans and credit you owe but the overall percentage of the credit that you have used. To understand this, let us consider an example- suppose you have a credit limit of 1000 per month and you end up spending 900 (90% of the total credit available on the card). Thus, try to spend not very much and keep paying off it from time to time as this will automatically increase your credit score.
- Length of the credit history: Well, the length of the credit history of a person is not that much important, but it does help to some extent. If you are managed to somehow pay off your debts from time to time for a long duration, then it will help in boosting your credit score.
- The total number of new credit: The total amount of new credit that you have taken also makes a significant impact on your credit profile. If you have applied for multiple lines of credit, this will be indicating that you are probably spending more than you are earning. And a large number of new credits make you a risky borrower in front of the lender.
Effective tips and tricks that can help you in improving your credit score
- Give priority to your payments
First and foremost, your credit score is the label that tells about your ability to pay your old debt off. Thus, you need to do is to keep your payment history as clean as possible. If you really want to be a good borrower, then try to stay away from things such as due payments, any kind of defaults, debts that are not cleared, foreclosures, and third-party collections, and others. However, if there any of these factors that are affecting your credit profile, then it’s better that you take a loan and get rid of them as soon as possible. There are many reputed India lenders like Loan Palace, New Horizons, who can provide guaranteed loans with no guarantor.
- Don’t completely remove your old debts from your report
After you have managed to get rid of your old debt or any accruing, you might think of clearing the record of all these debts as soon as possible. Well, this doesn’t have to this way. As long as all your payments have been paid off on time, there is no need for you to get rid of them as they reflect your borrowing capacity to the lender and leaves a good impression that you have managed to pay all your debts and credit of the past in time. Thus, it is better to have a record of your timely payment as it will help you immensely next time when you will visit a lender.
- Patience is the key
It is important for you to understand that you cannot remove the tag of bad credit to good credit in just one night. Building your credit score is time taking process and you will have to keep patience and calm yourself in the first place. All the small efforts that you will be making every day will eventually contribute to something larger in the longer run, and your credit score will definitely take a significant jump.
Wrapping up, there is no denying the fact that credit score is one of the key factors that decide whether the request of a borrower is accepted or not. With all the tips and suggestions mentioned above, you will be able to improve your credit score and will also know from the prior when you will be making any mistake.