Need to take out a personal loan but worried about high interest rates? The good news is that your credit score significantly determines how much lenders will charge. The higher your score, the more leverage you have to secure affordable financing.
While raising your credit score takes diligence and patience, the payoff of lower rates saves substantially over the lifetime of loans. If your credit needs work, implement these key tips before loan application timelines to boost your profile.
Build a Good Payment History
Payment history holds significant weight in calculating credit scores. By consistently paying all bills on time, you demonstrate financial reliability to lenders. Set up automated payments to avoid forgetting due dates that lead to late fees and credit damage.
If you already have late payments that lowered your score, continuing on-time payment streaks earns back lost points over time. Pay down balances whenever possible, too.
Reduce Your Credit Utilization
Speaking of balances, maintaining low credit utilisation has an outsized positive influence on credit scores as well. Utilisation compares your current balances to each credit card’s or revolving account’s limits.
For example, having a total Rs.4,00,000 limit across all credit cards but Rs 1,50,000 currently charged puts utilisation at 60%–much too high. By paying down balances to lower owed amounts, you qualify for the highest credit score bumps.
You don’t need to carry balances month-to-month to build credit, either. If you need higher balances for some months, try paying them down before the statement closing dates. This reports lower sums owed relative to limits to the credit bureaus.
Diversify Your Credit Mix
Credit reports and scores also consider your mix of credit types over time. Relying solely on credit cards fails to showcase your ability to manage diverse types of accounts and borrowing. Having a personal loan, auto loan, mortgage and credit cards on file favours score improvement too.
Before taking on new credit purely for diversification’s sake, wait at least a year between applications to avoid unnecessary hard inquiries. Consider timing personal loan applications before large planned expenses like overhauls to your home.
The combined positive payment history, conservative usage, and diverse types of credit raise your score significantly within a year or two.
Stay Diligent
Raising your credit score takes diligence across these habits over time. But the payoff of hundreds of dollars saved in interest over many years makes increasing your score incredibly worthwhile. Monitor your credit reports monthly for any inaccuracies affecting your scores negatively. Stay on track financially through budgeting tools and consistent payments to maintain progress.
The Bottom Line
Strengthening your credit health leads to financial confidence and flexibility, no matter what loans or cards you need. By implementing these credit-boosting tips, you’ll earn far better rates and repay debts faster wherever you borrow. IDFC FIRST Bank offers excellent interest rates for personal loan in the market starting from 10.75% p.a., so it is a good option to explore and choose to build a better credit score in the future.
