Maintain higher credit score to get loans on lower interest rate

Interest rates on loans are steadily rising. At the same time, banks are linking interest rates to credit scores. Those with a higher credit score are offered a discount of up to 5-10 basis points on interest rates. In this context, borrowers need to ensure their credit scores are properly maintained.

Hyderabad:A credit score is a measure of an individual’s creditworthiness. Once a person applies for a loan or credit card, banks or financial institutions will look into his repayment history and credit score. If the credit score is above 750, he is considered a trustworthy borrower. If there is a delay in remitting even a single EMI, it will reduce the credit score. Also, it will take more time to restore it.

Read:How to improve credit score: Follow these tips

Any loan, including home, auto, personal loans, or credit card bills, whether paid on time or not is the key factor in calculating a credit score. At the same time, the score is also affected when the limit is overused when using a credit‌ card. For instance, if a credit card limit is Rs 50,000, it should not be used beyond Rs 20,000. Only then, banks will assume that the credit limit is being utilised with discipline. It is not always advisable to exhaust the credit card limit for offers and cash back. This forces banks to assume that you are a debt-depended person and bound to have a negative impact on your credit score.
Avoid loan enquiries...

We keep getting phone calls offering credit cards and loans. At times, we also dial a bank to check out loan details. Also, we shouldn't say yes to a loan offer instantly. By sharing all the details sought by them, the banks will assume that you have sought the loan and the same will be marked in bank records. Credit score authorities will take note of it, leading to a drop in credit score. Hence, apply for a loan only if you really need it. The same rule applies to a credit card as well.

Right borrowing...

Right borrowing is also a key to earning a good credit score. The score will improve if you prefer secured loans like home or auto and repay them regularly. Excessive borrowing of unsecured personal or credit card loans will have an impact on credit history. A stable score is assured if you properly mix up these two types of loans.

For any discrepancies...

The credit report should be reviewed every six months. Some companies offer a free basic credit report, while banking apps also offer credit scores for online accounts. If any discrepancies are found in the credit report, the matter should be brought to the notice of the bank and Credit Bureau immediately. This can be corrected with the help of experts. If you fail to inform them quickly, you can't avoid future implications. A credit score is a measure of an individual’s financial discipline. It also provides the power to borrow and bargain lower interest rates when needed. Therefore, it must be carefully safeguarded.