Personal Loan: Tips to improve your credit score for quick and easy loan approvals
The borrower's credit score is the most important factor for lenders while approving a personal loan. Lenders often prefer credit scores for 750 or above to approve a personal loan.
Personal loans are the most common and easiest financial options that individuals avail for their emergency requirements or unexpected expenses. These loans not only help in meeting any financial shortcomings but also provide help in case of medical emergencies, among other things.
However, personal loans are a type of unsecured loan as banks or financial institutions provide them without any collateral i.e. without any mortgage, unlike other types of loans. Despite being an unsecured form of loan, personal loans are approved on the same grounds as other loans like income, age, existing loans, and especially the borrower's CIBIL score or credit score.
Importance of credit score for personal loan
The borrower's credit score is the most important factor while applying for a loan. Therefore, it is crucial for borrowers to maintain a high credit score for easy approval of a loan application. A bad credit score results in higher interest rates and processing fees, a delay in the application process and sometimes even rejection of the loan application. Thus, a good credit score also determines the borrower's eligibility for a personal loan.
As maintaining a good credit score is important for availing a personal loan, here are a few tips to improve your credit score.
How to improve your credit score for a personal loan?
1. Review and analyse credit reports: It is important to check the credit report properly regularly as CIBIL may often update incorrect details, thus bringing your credit score down. Upon identifying any mistake, one must report the same to the relevant banks or the credit agencies.
2. Pay dues on time: To improve your credit score, it is important to fix the late payments by paying all the dues on a timely basis. Delay in repayments draws a penalty, which eventually negatively affects the credit score.
3. Maintain old credit cards: One should continue maintaining their old credit cards as long as they pay the dues in full. This helps to build a solid and lengthy credit history, which will further increase the credit score.
4. Avoid multiple loans: One should avoid taking multiple loans at a time as it affects the borrower's credit history. One should repay a loan and then apply for another.
5. Good debt: One should use their credit cards or take a loan and pay the dues on time to build their financial strength as lenders assess the borrower's ability to repay loans.
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