Credit score, this name has gone viral recently. Many say credit scores should be good, and credit scores help you get loans and so on. But most people know the word without knowing the actual meaning or credit score. So this article is all about credit scores and how low credit scores can affect while taking any loan from any banking or financial institution.
Credit Score
Many don’t know what a credit score is and how it is calculated. So let me brief you about credit scores. Credit bureaus calculate your credit scores with many factors.
A credit score is a 3 digit number that ranges from 300 to 900. It determines the creditworthiness of a person or an organization. To get personal loans in India, a customer must have a good credit score ranging from 700 to 750. Having more than 750 is very good, and you will be able to get loans very easily from any banking or financial institution.
If you repay loans by delaying, that might affect your credit scores, leading to a drastic situation while getting a personal loan or any loan.
Low credit score
If you have a low score, it means that you are not eligible or not a worthy customer, and so banks or any other financial institutions may hesitate to give you personal loans. Many factors determine a credit score. They are,
- based on your payment history – 35%
- based on your outstanding debt – 30%
- based on your credit history – 15%
- based on any new debt – 10%
- based on credit mix – 10%
Credit scores also depend on how well you have repaid your previous loans; whether you have delayed or you have been a good customer, sort of things are taken into consideration.
So, now, if you have a low score and also need a personal loan, you can find some loan lenders who will be willing to give you the money but beware of the trap; you will be charged with higher interest rates as you don’t qualify based on credit scores. This option shall be considered when there is an urgency of taking a loan while you have a low credit score.
Choosing a lender when you have a low credit score
Always look out for lenders who have reputations. Many scammers are out in the market, so be careful while looking for lenders who can give you money.
Don’t become prey to scammers who can steal your data and may misuse those data; finally, you may get cheated by them without getting loans. For fishing customers with low credit scores, they would say many things to catch customers, so don’t fall for it.
Make sure you know the interest rates, and some money lenders may show their interest rates only for months and not years. So, please don’t fall for their tactics; inquire about the hidden charges you must pay before getting money from these lenders. But if you aren’t in a hurry, don’t go to these lenders; instead, try to improve your credit score and get the loan.
Improving your credit score
Here are a few tips to help you improve your credit score:
- If you have balances on your credit cards, try to pay them off first.
- Stop spending more on your credit card before settling down the previous balances. If you want to spend from a credit card, don’t spend more than what you can pay off.
- Don’t cancel your credit cards. Then you will reduce the total available credit, which can result in a bad credit score.
- If you have many credit cards and want to cancel and keep one, you transfer the credit limit to one card. But the catch is this might be possible only if the credit cards are from the same bank.
So all these points would have made you clear about improving your credit score.
P.S: You can always check your loan’s EMIs through a personal loan EMI calculator.
Conclusion
The credit score is important for taking loans. So, you must take loans instead of using credit cards and not frequently to maintain their respective credit scores. But do remember that you can improve credit scores with time, so don’t worry if you can use credit cards or take personal loans or any loans in a shorter duration.
Do remember don’t fall for scammers while you take loans from outside other than banking or financial institutes. Recommended is to improve your credit scores instead of taking loans from outside.