3 Things You Can do to Improve Your Credit Score in the New Financial Year
5 min read | 2 months ago
One of the crucial aspects of your financial health is your credit score. This blog will help you understand with the concept of credit score, why it is important, and, most importantly, why it is necessary to take personal loans or other forms of credit. The blog will also tell you about the three proven strategies to increase your credit score to secure personal loans and ensure a more financially healthy state.
So, let’s first begin with what is a credit score and why is it important.
Why is Credit Score so Important for You?
Your credit score is like a financial report card that lenders use to assess your creditworthiness. Whether you're applying for a personal loan, a mortgage, or even a credit card, your credit score plays a crucial role in determining whether you'll be approved for credit and what interest rate you'll be offered.
Your credit score is a financial report which gives lenders an idea of the likelihood that you will exercise good financial habits. Whether it's a personal loan finance or a mortgage, your credit score plays an important part in influencing whether you'll be eligible for any form of credit in the future.
Credit scores typically range from 300 to 900, with higher scores indicating lower credit risk. Lenders prefer to extend credit to individuals with higher credit scores because it signals that they are more likely to repay their debts responsibly. So, what exactly is a good credit score range? A good credit score ranges from 700-800. Having a good credit score of this range or above opens doors to better loan terms, such as lower interest rates and higher borrowing limits. You must be wondering how? We’ll answer your question.
If you apply for a personal loan or any other type of credit, financial institutions check your creditworthiness primarily through your credit score. In bank terms, a high score suggests only to people that you have not previously raised alarms about late payments or defaulted loans. Therefore, with a higher credit score more applications for loans are approved in comparison with lower scores.
Your credit history impacts more than just whether you will be approved for a loan. It also impacts the interest rates you're offered. Lenders like Small Finance Banks use credit scores as a means of assessing potential risk - people who have higher scores usually are regarded as being at lower levels of risk and therefore normally have lower interest rates. On the other hand, people without low credit scores may have to pay higher interest rates with the result that their borrowing will become disproportionately expensive over time, and gradually more so.
3 Strategies to Improve Your Credit Score:
Repay Debt in a Timely Manner
One of the most significant factors influencing your credit score is your payment history. Lenders want to see that you have a history of making timely payments on your debts. Any missed or late payments can significantly damage your credit score.
To improve your credit score, make it a priority to pay your bills on time, every time. Set up automatic payments or reminders to ensure you never miss a due date. If you're struggling to keep up with payments, consider reaching out to your creditors to discuss repayment options or seek help from a credit counselling service.
Keep Your Credit Utilisation Ratio Low
Your credit utilisation ratio refers to the amount of credit you're using compared to the total credit available to you. Keeping this ratio low demonstrates to lenders that you're not overly reliant on credit and can manage your finances responsibly.
Ideally, aim to keep your credit utilisation below 30%. If you find that your credit card balances are creeping up towards this threshold, it is a sign that you need personal loans to consolidate your debt. Personal loans from banks like Unity Small Finance Bank typically have lower interest rates, allowing you to pay off your debt more affordably while also improving your credit utilisation ratio.
Review Your Credit Score Report
Regularly monitoring your credit score and reviewing your credit report can help you identify any errors or inaccuracies that could be dragging down your score.
Take advantage of this opportunity to check your credit report for any discrepancies, such as incorrect personal information, unauthorised accounts, or fraudulent activity. If you spot any errors, report them to the credit bureau immediately to have them corrected.
Conclusion
Improving your credit score is a gradual process that requires patience and diligence. By following the strategies outlined in this blog – repaying debt in a timely manner, keeping your credit utilisation ratio below 30% by using personal loan finance, and reviewing your credit report regularly – you can take proactive steps towards boosting your creditworthiness."
Remember, a good credit score not only opens doors to better loan terms but also reflects your financial responsibility and discipline. So, as you embark on this new financial year, make it a priority to prioritise your credit health.
FAQs
1. Why is my credit score important?
Your credit score is crucial for obtaining loans. It indicates your creditworthiness, affecting approval chances and interest rates for personal loans, mortgages, and credit cards.
2. How can I improve my credit score?
Timely debt repayment is vital. Keep credit utilisation under 30%, consider personal loans for consolidation, and review your credit report annually to catch errors.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
