A good or bad credit score has a direct relation with your future loan prospects. Here is how you can increase your chances of getting a higher loan amount just by creating and maintaining a good credit score.
What exactly is a credit score?
Your credit score is a calculation of your overall financial health. It is derived by factoring in your credit, debt, repayment history, and other personal finance parameters. There are various credit rating agencies that calculate your credit report based on their intensive in-house algorithmic calculations.
India’s oldest credit information company CIBIL, or Credit Information Bureau (India), for example, calculates credit scores between 300 and 900 points, 300 being the lowest. Another credit rating agency, Equifax offers scores between 1 to 999 points.
Maintain a high credit score at all times
Banks and other lending institutions take into account your credit score before offering you a loan. Two prospective borrowers requesting for the same loan and having similar loan eligibility criteria may get different loan offers depending on their credit score.
For instance, if you and your friend both earn the same monthly salary and apply for a personal loan, you will be eligible for a higher loan amount as compared to your friend if your credit score is higher than his.
Therefore, the best thing you can do to help yourself is to maintain a high credit score at all times. For example, if your CIBIL score is 750, it is considered as safe by banks and NBFCs. The nearer your score is to the upper limit of 900, the better are your chances of getting a higher loan amount provided you fulfill other eligibility criteria.
Institutions offering credit score in India
There are many credit rating agencies like CIBIL, Equifax, Experian, and Crif Highmark that monitor your credit standing and provide credit score reports. All these agencies are approved by Reserve Bank of India and offer credit report services to various banks and financial institutions.
Some tips to improve your credit score
It is important that you keep your credit score healthy. Here are some tips that you can adopt to make sure your credit score remains pink:
Keep an eye on your credit score: Keep an eye on your credit score by periodically monitoring your credit score from various agencies. This way you will know your current scores and whether it needs improvement.
Repay all your dues in time: Make it a habit to repay all your dues on time, as bad credit can dent your credit score significantly. Also, try to minimize the ratio of credit used on your credit card to available credit.
Do not be credit-hungry: Avoid applying for every card or loan advertisement. Applying for multiple loans or credit cards can paint you as a credit-hungry individual in the eyes of credit score reporting agencies. Therefore, borrow only when you need to.
Avoid acting as a loan guarantor: As a loan guarantor, if the loan borrower fails to repay on time or defaults on the loan, your credit score can drop significantly as a guarantor. Therefore, think twice before playing a loan guarantor for anyone.
Credit score is much more than a number as a higher score brings with it many advantages. You can get a higher loan amount just by bringing in subtle changes to your financial habits and by keeping a healthy credit score.
The writer is CEO, BankBazaar.com