When you apply for an instant loan, your credit score plays a significant role. Credit score is a very essential parameter that financial institutions rely on to assess your financial profile. Your credit score gives the lender necessary insights about your credit behaviour. Based on this score, lenders determine your loan eligibility. It also impacts their decision about the loan amount and the interest rate. A good credit score can help you negotiate with the lender for a lower interest rate and higher credit limit. That’s why, it’s important to maintain a good credit score.
Your credit score is an essential part of the eligibility requirements for a quick loan. Though, you may manage to avail an instant loan through a loan app, even if your credit score is not that high, it is always better to maintain a healthy score. Also, for big-ticket loans, like a home loan or a car loan, you must have a high credit score. This can help you secure these big-ticket loans at lower interest rates. Typically, you would need to hit a minimum credit score threshold of 750 to be eligible for these loans.
Some reputed lenders may keep this requirement down to 700, but having a higher credit score makes you a highly eligible loan customer. This not only helps you avail the loan but also assists in securing favourable terms on your advance. From getting a low interest rate to high flexibility, a high credit score brings many benefits.
Here are some tips to help improve your credit score.
5 Smart Tips That Help Improve Your Credit Score to 800
- Make repayments in time and in full
Your repayment history forms a crucial part of your credit history. The longer and cleaner this history, the higher will be your credit score. Whether you are availing an instant loan that is unsecured or availing collateralised financing, your repayment history acquires significant weightage. That’s why, it is crucial to make your loan repayments in time and in full.
While you may not have options to pay quick loan EMIs in part, your credit card bills give you the flexibility to make only partial payment of the bill amount. While this can make your credit card bills more affordable, it impacts your credit score negatively. It is thus suggested that you pay your credit card bills in full every month. You must also make the payments within the due date and without fail.
- Keep your credit utilisation ratio under 30%
Your credit utilisation ratio represents the percentage of total credit utilised out of the total credit amount available. It represents the overall credit dependency and enables the lender to assess financial discipline of the borrower. For the purpose of keeping your credit score high, you must keep your credit utilisation ratio under 30%.
For instance, if you have a credit card limit of Rs.1 Lakh per month, it is suggested not to use more than Rs.30,000 every month to maintain this ratio. Also, you need to pay your loan EMIs on time to bring this utilisation down.
- Maintain a balanced bag of credit portfolio
Your overall creditworthiness and the risk associated with your borrowing profile also depend on your credit portfolio. This will also impact your credit history. A balanced bag of credit, including secured and unsecured loans, distributes the borrowing risk equivalently across your profile. Thus, if you have been relying more on secured loans, you may want to avail some easy unsecured financing options like instant loans as well to balance out your credit load.
- Keep your Fixed Obligation to Income Ratio (FOIR) under 50%
Your FOIR represents the percentage of monthly income utilised towards servicing fixed monthly liabilities. When you are trying to improve your credit score to 800, it is crucial to maintain your FOIR under 50% to leave a positive impact on your score. You can thus choose to repay existing loans and borrow only as much as fits into this percentage to maintain your FOIR.
- Review credit report and dispute errors
Errors in your credit report can also contribute to credit score determination. Make sure to check for these errors and disputes, and inform your credit bureau in case you see a discrepancy. Submit the necessary documents to eliminate any negative impact on your score. This shall help improve the final score assigned to you.
Along with these initiatives, it can always work to maintain a long and appreciated history of credit. It indicates borrower dependability and discipline when lenders assess your credit profile for instant loan applications. So, if you have availed a new credit card, leaving your old credit card unused, it can be useful to keep the old card running and not close it. This is because it would contribute to a long and reliable history.
At the same time, you may want to close your long-running loans and advances as they occupy your repayment capacity. Thus, adding unnecessary load to the overall FOIR percentage. Make sure that you have undertaken these steps at least six months prior to your quick loan application or more. It is because any changes recorded by the credit bureau would take time to reflect on your credit history and record.