When you apply for a loan, the lender looks at your credit report before almost anything else. The score on it, a three-digit number usually between 300 and 900, is a quick summary of how you have handled borrowing so far.
Why the score matters
A higher score tells the lender you repay on time. In practice that can mean easier approval, a lower interest rate and better terms. Many lenders treat a score of around 750 and above as strong, though every lender sets its own criteria.
What goes into your score
- Payment history: missed or late EMIs and card payments hurt the most.
- Credit utilisation: using most of your card limit every month signals stress. Keeping usage well below the limit helps.
- Credit mix: a healthy mix of secured and unsecured credit is viewed positively.
- Age of credit: older accounts in good standing help.
- Recent enquiries: many loan applications in a short time can lower the score.
How to improve it
Pay every EMI and card bill on or before the due date, since auto-pay helps. Keep card usage low. Avoid applying to many lenders at once. Do not close your oldest card without thinking about it. And check your report at least once a year, because errors do happen and can be corrected by raising a dispute.
If your score is low right now
A low score is not permanent. Clearing overdue amounts and showing a few months of regular payments will usually move it up. In the meantime, some lenders may still offer a loan at a higher rate, or you can apply with a co-applicant who has a stronger profile.
Wondering which lenders may suit your profile? Share your requirement and we will help you find options without a flood of applications.
FinMighty TeamInvestment, loan & insurance advisors, JaipurThis article is for general information only and is not personalised financial, tax or legal advice. Please see our Disclaimer.
