You apply for a loan and realize that the bank rejected your application citing a poor credit score. The information can be eye-opening as it prompts you to find out factors that may have possibly affected your credit score. Having a diminished credit score may incur low-term effects, especially, whenever you would be looking for a loan in the near or distant future.
Do you have a debt to repay?
Once you have your credit report in hand, you can easily access the details of all your financial records and activities. This way, you can check the regularity of your equated monthly instalments (EMI) payments, old and current loan records, the number of credit cards taken and in use, etc. There can be one or more reasons responsible for your reduced credit score. Checking for plausible reasons is important, else you will not be able to rectify your credit score or implement corrective measures to correct the same.
Delayed loan repayments
Check if you have been repaying your loan instalments on time. If you have been delaying your loan EMIs or have sought an extension of your loan tenure or defaulted on your loan due to a sudden financial crisis, it is time to correct your mistakes. Check how many times you may have defaulted on your loan instalments to ensure financial discipline during the later stages of your life. Set up reminders to repay your loan on or before the due date. This is because delaying your loan instalments continuously can have a damaging effect on your credit score. Ensure timely repayment of your liabilities. Infusing regularity in your loan repayments can help improve your credit score in the long run.
Are you credit hungry?
Do you prefer to buy things on credit? Do you always make payments using your credit cards? Every credit card comes with a stipulated spending limit. Exhausting this translates to a high credit utilization ratio (CUR). Banks and credit card companies often check if the CUR on your card exceeds 30 per cent and decide your credit score accordingly. If high CUR is the reason behind the lowering of your credit score, it is time to redress the same by reducing the frequency of your credit card use.
Having too many loans
Banks and credit companies are apprehensive of lending to people carrying the burden of multiple loans including home loans, personal loans, vehicle loans, etc. It does not matter if the loan amounts are big or if they are multiple ticket-size loans. Your credit score may not be able to bear the burden of your multiple loans, unbiased of how regularly you repay your loans. This is because repaying multiple loans can take a considerable toll on your finances. Reducing your loan size and number can help improve your credit score. This you can do by prepaying one or more loans and reducing the total number of loans to be repaid to not more than one.
Applying for a loan from multiple sources
You are looking to raise a loan and have been inquiring from multiple sources regarding the same. Too many inquiries for a new loan can lend a negative impact on your credit score, especially, if you have multiple loans riding in your name. Your credit score is tied up with your repayment ability and obligation to repay the loan sought. Avoid asking multiple sources for details of the loan to avoid taking a direct hit on your credit score.
Many people have complained of a lower credit score despite all their finances including loans being in perfect order. This happens when lenders unknowingly report inaccurate information to the credit bureaus, thus, affecting your credit score negatively. To ensure that you have a high credit score, you must check your credit report regularly. A good credit score is essential to avail loan(s) at reasonable interest rates. Hence, ensuring a good credit score matters.