The personal and business loan lending eligibility criteria differ from one lender to another. But each lender evaluates the creditworthiness of borrowers based on their credit scores. When you apply for a personal or business loan, the lender will use your credit score as the primary criterion to decide about approving or rejecting the loan application. Most lenders nowadays extend unsecured credit only to borrowers who have excellent credit scores. Likewise, many lenders provide credit at higher interest rate if the borrower has a low credit score.
In addition to becoming the deciding factor in credit approval, your personal credit score will also impact the loan interest rate. You must remember that your past financial behavior will affect your personal score directly. For instance, your personal credit score will fall if you have too many loans/credit cards, do not pay credit card bills or loan installments on time, or use a large percentage of your credit limit. You should always be financially aware and know how to maintain and improve your credit score, so that you dont face any problems in availing personal or unsecured business loans in future.
How to Maintain and Improve Your Credit Score
1) Pay your loans and credit cards on time
You can easily maintain a good credit score by paying your credit card bills and loan EMIs on time. If you are finding it difficult to repay the current loan EMI, approach the lender to restructure the loan. Likewise, you must pay the credit card bill in full instead of paying the minimum amount due. The timely repayment of loans and credit card bills will help you to maintain a good credit score in the long run.
2) Explore ways to reduce borrowing
You must remember that your credit hungry behaviour will impact your personal credit score directly and adversely. You must explore ways to avoid borrowing additional funds to improve the credit score. It is always a good idea to keep a portion of your credit card limits unutilized. Also, you must not apply for a secured or unsecured loan if you are not in dire need of funds.
3) Don’t settle loans or credit card dues
Many borrowers settle their credit cards or personal loans to save money. Each time a borrower settles a loan or credit card, he does not pay the actual amount due to the lender fully. But the settlement often affects the lender’s personal credit score in both short and long runs. Many lenders even do not extend credit to a borrower who has settled loans or credit card dues in past.
4) Combine secured and unsecured loans
You can meet your financial needs through either secured loans or unsecured loans. But your credit score will be impacted adversely of you took too many unsecured loans. You can easily maintain a good credit score by combining secured and unsecured loans. Instead of taking too many credit cards or personal loans, you can consider availing secured loans like vehicle loans and home loans.
5) Avoid applying for loans frequently
You must remember that each time a borrower applies for a loan or credit cards the inquiry made by the lender is recorded in his credit report. Hence, you can easily improve your credit score by not apply for loans or credit cards at frequent intervals. Likewise, you must not apply for credit to a new lender immediately after your loan request being rejected by another lender. It is always a good idea to wait for some days before reapplying for credit.
6) Make payment with your oldest credit card
If you have multiple credit cards, it is advisable to make payment with the oldest credit cards. When you use a card regularly and pay credit card bills on time, the transactions will reflect in your credit report and improve your credit score. You can also impress the prospective lenders by maintaining a good account over a longer period of time. However, it is also important to keep the credit card alive.
7) Check your credit report thoroughly
Often a borrower’s credit score is affected by certain erroneous transactions and data entry errors. You must review your credit report regularly to identify such inaccuracies on time and get them rectified without any delay. You can get the errors or mistakes rectified easily by disputing them on the official website of CIBIL. Based on your request, CIBIL will instruct the financial institution to resolve the inaccuracy within 30 days.
On the whole, you can easily avail credit at favorable rates by maintaining a good credit score. These simple but effective tips will help you to maintain and improve your credits score on a regular basis. It is also a good idea to check your credit score at regular intervals to decide if you need to adopt some changes and modify your financial behavior.