Credit score and debt management help the person in dealing with their respective goals and finances. In India, people don’t know more about creditworthiness and take frequent risks. Understanding credit score and their effectiveness in getting good loan options is very crucial these days. Banks and financial institutions consider this score to provide credits or loans to the eligible person. Whether you are applying for an SBI personal loan or an ICICI bank business loan, you should know and check your credit score first before making an application process on the internet or in offline mode.
Here, in this blog, you will learn about the system of credit scores and its role in taking a business or personal loan to meet your financial needs:
Know About Credit Score
It’s a three-digit credit number that shows the past, transaction history and financial status of the borrower or the individual. Banks and financial organizations consider this credit score for providing loans like SBI personal loans, ICICI business loans etc.
The credit score shows your creditworthiness to make you capable of whether you can easily pay your debts on time or not. The higher your credit score, the higher the chances of getting your loan approved. A good and higher credit score will provide a better platform for getting financial benefits from your lender.
How Credit Score is Calculated? Know Here
A credit score is calculated based on several factors like payment history, credit utilization, credit history tenure and length, type of credit you are applying for, your loan or debt status etc. One of the most important factors that decides for better credit score is payment history. It accounts for about 35% which consists of several things like your transaction records and missed deposit payments if any.
Another necessary factor that helps you make capable for your loan is credit utilization. You should keep your credit utilization as low as possible to build a perfect reputation with a robust credit score.
Tips to Improve Credit Score for Indians
Indians research a lot before spending money on a particular task or investment. So alluring them is not easy for a particular loan be it an SBI personal loan or an HDFC small business loan.
A credit score is very necessary these days in order to make a good impression on your lender or bank. If your credit score is very low for a loan, work on its enhancement. You have to follow these tips to improve your credit score:
Make your Bill Payment on Time
The first and foremost task you have to do is to make a habit of timely bill payment. Ensure to have enough funds in hand to tackle this issue. If yes, pay your credit card bills and all your debts on time to get a perfect place for your creditworthiness and to build strong credit for borrowing a new loan.
Timely debt payments will make a good impression on your lender and a healthy relationship can easily make things happen in enhancement of your credit score which is enough to make you eligible for the new loan.
Keep Credit Utilization Low
If you are living in India, you should know what your lender or bank is requesting related to credit utilisation. How low credit utilization ratio they are demanding for providing loan approval? It is always suggested to keep your DTI ratio as low as possible which enhances the chances of taking a loan very easily. Get hands-on low credit utilization to improve your credit score.
Avoid Closure of Old/Previous Credit Accounts
However, it is clear that credit history matters and is very necessary for a credit score. Closing of loans and credit accounts may lead to bad credit scores or creditworthiness. So, it is always recommended to keep all your previous credit accounts open as they will help you analyze your budget and help your lender check your credit history very easily.
Don’t Apply for Multiple Loans at a Time
If you want to improve your credit score with Indian lenders and banking organizations, it will be far better to stay away from opening multiple loan accounts in a specific time. Keep a gap between the previous and the next loan application as it may affect your credit score as well.
Summary
A credit score is very necessary for the lender to know your creditworthiness and the ability to pay debts on time. It’s a three-digit number that shows how effectively you can manage your finances with a new loan. So, lenders consider credit scores before approving a new loan. For a better credit score, you have to follow some necessary steps: collaborate with your lender, don’t close previous credit accounts, make credit utilization low etc.
