People tend to avail loans for various purposes that may include the purchase of a home or a car or consumer durables or even an educational loan. While borrowers may feel it is their birthright to get a loan, lenders seek borrowers with impeccable credit history so that they are sure that borrowers repay the loan along with interest promptly.
Before they can secure a loan, borrowers need to satisfy various conditions that include
· A CIBIL score above 750
· Source of income that is steady
· Continuous and permanent service if salaried
· Sound business credentials if businessmen or professionals
· Solid personal finance history
· Reputation in society
Based on the above, lenders extend loans such as a personal loan or a home loan or an educational loan.
What is CIBIL Score?
It is difficult for lenders to determine the creditworthiness of borrowers who don’t have a relationship with them. When a prospect applies for a loan, lenders look to an impartial agency that can vouch for the creditworthiness of the applicant. In India, credit bureaus do the vouchsafing. The most popular one is TransUnion CIBIL (CIBIL) which provides a rating for the creditworthiness of borrowers known as CIBIL Score. CIBIL stores data supplied by more than 2,400 banks, NBFCs and financial institutions on 550 million people who have borrowed from the lenders. Typically, CIBIL tracks the repayment history of borrowers and the applications made for loans by them. Based on this history CIBIL issues a score that ranges between 300 and 900. The lower end denotes high credit risk and the higher end denotes low credit risk. A CIBIL score of 750 and above is good enough to get loans with attractive terms and conditions including reasonable interest rates. A score lower than 750 makes the loan conditions more stringent and a really low score can lead to the rejection of a loan application. Thus, a high CIBIL score is one of the prerequisites for personal loan eligibility.
A high CIBIL score ensures the acceptance of your loan application with the lender. In order to help you attain a high CIBIL score, we present below 9 tips which will help you to obtain a loan with favourable terms and conditions including low-interest rates.
1. Know what CIBIL Score Means
The first thing that you need to learn is the way CIBIL calculates your CIBIL score. If you understand the CIBIL score then it is easier for you to attain a higher score by avoiding the parameters that contribute to a low CIBIL score.
2. Keep your Credit Card Fully Paid
Delayed credit card payments contribute to poor credit history besides costing you a bomb in interest payments. Do not get greedy and delay payments. Remember, you already get up to 53 days of credit due to the credit cycle followed by credit card issuers. Use this facility and pay the balance outstanding fully. Do not pay only minimum payment due as this facility loses the 53-day credit advantage due to you and gets reflected in the credit score lowering it.
3. Consolidate multiple credit cards into just one or two
Having multiple credit cards with the objective of having a higher credit limit is quite foolish if you don’t exercise prudence in using the facilities offered. The tendency is to over commit just because you have a credit limit. Prune your cards to just a few and ensure you pay fully using the credit period available without falling into the trap of minimum amount due facility. Remember, when pruning, retain the cards that you have a strong credit history with.
4. Enhance credit limit on the credit card
It helps your credit rating if you seek and get an enhancement of your credit limit. Your credit rating goes up if you use your credit limit sparingly with a good reserve always.
5. Secured loans are better for a higher score
A secured loan such as a home loan builds credibility over a longer period of time especially when you pay your EMIs bang on time.
6. Ensure timely EMI payments of your existing loans
If you have too many loans then ensure you make EMI payments on each one of them in a timely manner without any default.
7. Develop a healthy relationship with lenders
It pays to develop a long-standing healthy relationship with your lenders. This will go a long way to improve your CIBIL score.
8. Avoid frequent job changes
If you are salaried, avoid frequent job changes. This affects your credit rating because there is a probationary period in each new job which is not good for your credit rating.
9. Limit the number of loans to the bare minimum
It is easier to service fewer loans promptly than a large number of loans. Larger the number of loans, probability of defaulting is more leading to poor credit rating.
The best way to obtain loans with favorable terms and conditions from banks and NBFCs such as Tata Capital is to follow a prudent personal finance regimen by living within means, making EMI payments on loans promptly and exercising utmost caution while availing loans.