You are all set to take your dream vacation to Europe. You planned to cover the expenses with a personal loan but were shocked when your application was rejected.
The reason? A low credit score.
You never paid much attention to your credit health, and now it was holding you back from achieving your vacation goals.
If you want to avoid such a predicament, don’t worry. Improving your credit score isn’t rocket science, and this blog will guide you through simple, actionable steps to boost your chances of securing a personal loan.
What Is a Credit Score and Why Does It Matter?
Your credit score is a 3-digit number that reflects your creditworthiness. In India, the CIBIL score is the most commonly used metric, ranging from 300 to 900. The higher your score, the better your chances of getting loan approvals and favorable terms.
Minimum Credit Score for Personal Loans
Most lenders require a credit score of at least 750 for personal loans. However, some digital lenders may consider scores as low as 675, albeit with higher interest rates and stricter terms.
Having a low credit score does not mean you are out of options. It simply means you need to work on improving it.
Tips to Boost Your CIBIL Score
Here are some practical ways to improve your credit score for personal loans:
1. Pay Your Bills on Time
Your payment history contributes about 35% to your credit score. Late payments, even by a few days, can hurt your score. Set up reminders or enable auto-debit to ensure you never miss a due date.
2. Keep Your Credit Utilization Low
Credit utilization refers to the percentage of your available credit that you are using. Ideally, keep it below 30%. For instance, if your credit card limit is ₹1 lakh, avoid exceeding ₹30,000 in monthly usage.
3. Check Your Credit Report Regularly
Errors in your credit report, such as incorrect loan entries or missed payments, can drag down your score. Review your report frequently and dispute any inaccuracies with the credit bureau.
4. Avoid Frequent Loan Applications
Each time you apply for credit, lenders perform a hard inquiry, which can temporarily lower your score. Limit your loan applications and use an EMI calculator to estimate affordability before applying.
5. Diversify Your Credit Mix
Lenders prefer borrowers with a healthy mix of secured (e.g., home loans) and unsecured credit (e.g., personal loans). If your credit profile is too skewed, consider balancing it.
6. Don’t Close Old Credit Cards
Your credit history length impacts your score. Closing old credit cards can shorten your history and reduce your score. Instead, keep them open and active.
How Long Does It Take to Improve Your Credit Score?
Improving your credit score isn’t an overnight process. On average, it can take 3-6 months of consistent effort to see a noticeable improvement.
However, the exact timeline depends on factors like the severity of your credit issues and your financial discipline.
Can You Get Personal Loans for Low Credit Scores?
Yes, it is possible to get personal loans for low credit scores, but the terms may not be favorable. Here’s what you can do:
Opt for a Joint Loan or Guarantor – Adding a co-borrower or guarantor with a good credit score can improve your chances.
Choose Lenders Offering Flexible Terms – Some digital lending platforms offer loans to individuals with low credit scores but at higher interest rates.
Consider Secured Loans – Offering collateral can increase your approval chances and reduce the interest rate.
Why Maintaining a Good Credit Score Matters
A high credit score not only increases your chances of approval but also ensures quicker loan disbursal time, lower interest rates, and higher loan amounts.
For example, someone with a score of 800 might get a personal loan at 10% interest, while someone with 650 might pay 15% or more.
Final Thoughts
Many people overlook their credit health until it’s too late. By taking proactive steps to improve your credit score, you can not only secure the loan you need but also enjoy better financial opportunities in the future.
Remember, a good credit score is a stepping stone to achieving your dreams without unnecessary financial stress.
Need help to understand your credit health?
Start monitoring your score today with Olyv and make informed decisions about your financial future.