When someone applies for a loan or any sort with a good credit score, they usually get lower interest rates and better terms on loans. Those who already have an existing loan must maintain the score to get better loan deals in the future. Using a Personal Loan EMI calculator helps plan the repayments according to the monthly budget and maintain a good credit score for long.
However, it is not easy to boost credit ratings overnight. You must begin with identifying the reason for a low credit score. Understand the circumstances that are impacting your credit score and work towards them to increase it gradually. Below, we’ll share some advice on how a credit score can be increased and how to make it happen.
1. Identify Errors in the Credit Report
Reviewing the credit report and identifying errors is the fastest way to increase the credit score. These discrepancies might negatively impact your credit score. Disputing the errors and requesting their removal or correction will increase the credit score for a Personal Loan or any other debt almost instantly.
Errors in credit reports include personal information errors, account errors or mistaken accounts. Wrong information on the report acts as a red flag, leading to credit application rejection. Therefore, looking out for misreported payments, fraudulent accounts, or duplicate entries is essential.
Most people do not regularly review their reports and are often surprised by the errors in their documents. That is why experts recommend checking the credit report at least once a year and ensuring everything is kosher. Each credit bureau is obligated to deliver one credit report annually for free. So, there’s nothing to lose when you request an annual credit report. Make sure to take some time and review it thoroughly.
2. Prepay the Existing Loans
When you have extra funds to pay more than the fixed loan EMI, consider doing so. Chipping away the existing loans will significantly impact the credit score because it helps keep the debt-to-income ratio low. However, how quickly the credit score increases depends on how fast the creditors report the prepayment to credit bureaus. Some loan providers report it within days, while others take around a month. Borrowers may call the NBFC’s customer representative and enquire about their credit reporting schedule to the bureaus.
The sooner you can pay off the balance, the better. Making multiple prepayments towards the loan balance is also helpful, as it helps keep the balance low and track spending. Although prepaying a portion of the debt will help, paying off the complete balance will have the fastest and biggest impact on the credit score of Personal Loan seekers. Most loan providers issue a prepayment charge associated with prepayments depending on the timing of the prepayment.
3. Increase the Credit Limits
Credit utilisation rate is a crucial factor weighing heavily on an individual’s credit score. The percentage of available credit a person uses on average makes a significant difference. Carrying a balance exceeding 50% of the available credit limit might negatively impact the credit score. Therefore, maxing out the cards and credit lines will reduce the credit score.
One way to reduce the credit utilisation rate is to increase the available credit limit. For instance, when a person owes ₹ 2.5 Lakh with a ₹ 5 Lakh credit limit and gets the limit increased to ₹ 7.5 Lakh, the ratio will instantly improve. There are two ways to increase the credit limit: ask the credit card issuer to increase the credit limit. A higher overall credit limit leads to a lower credit utilisation rate if the borrower does not max out the monthly credit limit. Before asking for an increase in the credit limit, ensure you do not get tempted to spend more with the higher credit available.
While considering getting a new loan, doing research beforehand is imperative. The frequency of opening new accounts significantly affects the credit score. With each application, the loan company seeks the applicant’s credit report and makes a hard enquiry, causing a dip in the credit score by a few points. Therefore, do not apply for multiple loans in a short period, as they send red flags to NBFCs.
Call the loan provider’s customer care department to request an increase in the credit limit. When the individual has a consistent payment history, NBFCs will be happy to increase their limit. After all, they want the borrowers to have a higher credit limit to use more credit. Just ensure you do not use the extra available credit recklessly because you will be back to the same credit utilisation rate and find yourself deeper in debt.
4. Never Miss Payments
Payment history is essential in determining an individual’s credit score. That is why most NBFCs ask for a minimum credit score for Personal Loans to gauge the applicant’s repayment habits. A strong history of timely payments will help you achieve an excellent credit score. Individuals must ensure they do not miss or delay their loan EMIs or credit card bill payments to accomplish a good credit score. When EMIs are missed, lending institutions report late payments to the credit bureaus, hurting the borrower’s credit score.
Setting up automatic payments is an efficient technique to avoid missing EMI payments as long as they do not overdraft the bank account. People facing trouble with their EMI payment must immediately reach out to the NBFC and find a solution.
Conclusion
Improving your credit score is the best way to get better deals on credit. While trying to take a loan with the best terms and conditions, use a Personal Loan EMI calculator to estimate future EMIs and plan repayments. It will help you maintain a high credit score to get the best deal. A high credit score also helps get the lowest interest rates, longer repayment terms, and larger loan sanctions. Although improving the credit score may take several weeks or months, taking the required steps today will give the desired benefits tomorrow.
