15-Sep-2018 written by : FSI-Team
Was your loan application rejected recently because of low credit score? If your answer is "yes", then you are not the only one. In fact, poor credit score is one of the most common reasons behind loan rejections and harsh repayment terms (in case an application gets approved).
Banks have become extra careful with loan disbursements lately due to the rise in the Non-Preforming Assets (NPAs) in the banking sector. So, having a good credit history is a must. The question is- what are you to do when yours doesn't look good?
If you are determined to improve your credit score, then the first thing you need to do is apply for your free CIBIL report. Only with this document, you can get all the details you need to assess your current situation.
Your credit report shows everything – your personal details, repayment history, credit variety, history of loan default (if any), enquiries, etc. Moreover, it's the only way to find your credit score.
What you want to look for in your report is whether there are any discrepancies in the details. There should not be any typo in your name or address, etc. and neither should there be any mismatch between your bank account details, loan payment dates, etc. and the actual documents you have with you. If you notice any mistake, then you should contact your bank immediately and request them to have it corrected. Believe it or not, fixing mistakes like these can alone improve your score to a great extent and make it easy to get an SBI Home loan or personal loan, etc.
There are many things that you can do to create and maintain a positive history other than checking your credit report on a regular basis. Some of these are:
Credit cards have numerous advantages. They make shopping easier and cheaper, allow you to afford expensive products through EMIs, and even help in improving your credit score. However, when used irresponsibly, they can backfire and mar your free CIBIL report. This happens when you use your credit cards more often than you should.
To ensure that your credit score isn't hurt by your credit card usage, try to keep your credit utilization low. It is the amount of money you spend with your card compared to the amount of credit available. So, your card limit is Rs. 1 lakh, and you spend Rs. 50,000 every month on average, then your credit utilization would be 50%. Ideally, it should be below 35%.
If you think making "minimum payments" for your credit card bills is a convenient feature that doesn't have any repercussions, then you are wrong. Although these minimum payments do protect you from penalties when you aren't able to pay the full amount of a credit card bill, the balance amount is still carried over to the next month and continues to collect interest. If you have a habit of making minimum payments more frequently, then it can increase your debt which is never good for credit score.
If you want to improve your credit score as quickly as possible, then it's really important that you become punctual with your payments. Whether it's the EMIs of SBI home loan, car loan, etc. or insurance premium or credit card bills, you must pay for everything on time every time. Delay in a single payment can have a huge impact on your credit report.
If you ever defaulted on a loan and took the "settlement" route with the bank, then it's possible that the debt is still mentioned in your credit report. This is because "debt settlement" means only partial payment of a loan just so that the ledger can be closed. So, unless you repay the full remaining amount to the bank, you can't clear the remark which is a bright red flag for every lender.