You recently applied for a loan, but your loan application was rejected due to a bad credit score.
What will you do now? If the credit score is bad, then your loan application can be rejected even further.
How to improve your credit score?
Let us know.
1. Pay your loan EMIs and credit card bills on time
This is most important.
If you do not pay your loan EMI or credit card bill on time, then your credit score can never be good. Whatever you do, don’t expect a good credit score if you don’t make your payments on time.
Generally, there can be delay in payment due to two reasons.
First, you are loose. If you are lazy and not disciplined enough to make timely payments, opt for auto-debit facility from your bank account. By doing this, you will not stop the payment by forgetting.
Second, you regularly run short of money to make payments. This is a bigger problem. If you can’t stop your hand from spending, then you need to change this habit.
But if you are short of money for some reason, then you will have to make some big changes. Like increase your income, reduce expenses or refinance the loan.
You can read about this in detail in this post (English).
2. Check Your Credit Report
You should regularly check your credit report and get any discrepancies corrected. It is possible that some bank has given some wrong information and your credit score (cibil score) is getting affected unnecessarily.
I have discussed in this post how to correct mistakes in your credit report.
Now there is also the facility that you can download a credit report for free every year. So take full advantage of this facility and check your credit report (or CIBIL report) from time to time.
3. Understand the reason for bad credit score
Now it may also happen that your credit score is bad because of your habits.
Some reasons are easily understood. Like you do not pay loan or credit card bill on time. But some reasons are not so obvious.
Credit bureaus do not publicly disclose how they calculate credit scores. But it is understood that there are some factors due to which the score can be affected:
You use credit cards a lot. I mean you always use your limit to a great extent (High Credit Limit Utilization). It shows that maybe your financial condition is not so good. Hence can affect your credit score. If your score is not good even after paying on time, then you must pay attention to this. You can request to increase your credit limit.
Also, whenever you apply for a loan or credit card, banks (or credit institutions) inquire about your credit score (from credit bureaus such as CIBIL). This type of credit score inquiry is called Hard Enquiry. If there are too many hard inquiries on your score, the credit bureaus may think you are too eager to get a loan or credit. This thing can also affect your credit score.
If you need a loan or a credit card, don’t start applying indiscriminately. First do some research, choose the bank and then apply.
4. Take a credit card against Fixed Deposit (Credit card against Fixed Deposit)
If you already have a credit card or are running loans, you can gradually improve your credit score by making your payments regular.
But suppose you do not have any loan or credit card. Obviously, in such a situation you will not have any credit history. This does not mean that you do not have a credit score. There is no question of good or bad.
Sometimes it becomes difficult to get loan even in the absence of credit history.
And until the loan or credit card is not available, the credit score will not be made.
Ho gayi na, the story of the chicken and the egg (which came first the chicken or the egg).
What would you do in such a situation?
There is a way
You can open a Fixed Deposit and take a credit card on top of it (Credit against Fixed Deposit).
In this case, the credit limit of the card will be up to 80-85% of the FD amount. If your FD is Rs 50,000, then your card limit will be Rs 35,000 to Rs 40,000.
Usually the bank does not have any problem in giving credit card like this because if you do not pay, then it will break your FD and recover its money.
But yes, you have to make timely payments to have a good credit score.
5. Don’t close old credit card accounts
People have different opinions about this.
Some people say that the age of your credit card also affects your credit score.
If you have old credit card accounts, your score can be affected.
So don’t close your old accounts.
Your credit limit utilization will also increase on closure of the card. This can also affect your score.
Here is two more bonus tips
6. Seek professional help
You can also approach credit repair agencies for credit score building (improvement).
Although, you will have to spend some money for this, but it can prove to be useful for you.
Now that you have paid for their service, it is possible that you follow their suggestions very well.
But choosing the right agency is also a problem. Contact only after proper investigation.
There are also many fake people in this business, who can fool you by taking money from you.
Avoid those people who talk about improving the score quickly.
7. Be patient
This is also very important. Even after doing everything, your credit score will not improve in a day. Improvement takes time.
So you might be doing everything right, but your credit score is not improving as per your wish. In such a situation, do not give up good habits by being disappointed. Have patience and persevere. Gradually your credit score will improve.