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What Are the Causes of a Low Credit Score & How Can You Ameliorate It?

Your credit score refers to the measure of your finances. Before you lend your funds, lenders check your credit score by approaching a credit bureau like CIBILone of the top credit rating agencies in India. It is a crucial element as lenders gauge you based on your credit score. Your score is important because it impacts your health financially in a major way. For instance, a strong score would assist you to instantly qualify for credit loans. Also, with a strong score, you can avail a loan at a low rate of interest. Alternatively, poor scores can make it tough to avail of funds during financial emergencies.

 

In the present day, availing of a personal loan has become an important thing. However, with loans getting difficult to avail of, it can become troublesome to fund any of your requirements.

What is meant by a credit score?

A score is a 3-digit number that throws light upon your approach to how you handle your debt. Almost all Indian lenders use the CIBIL score to determine your credibility. Distinct credit agencies might assign different scores. The major reason for the difference in score is the distinct methodologies used by different credit rating agencies. Also, distinct credit rating agencies’ ratings differ from time to time, so there may be a difference in scores.

You cannot track your score from all rating agencies. So, it is best to keep a tab on just the scores by the well-known agencies that are approved by all kinds of lenders. Tracking 1 or 2 top credit rating agencies in India endow you with a thorough idea about your performance, just debt-wise.

What does a credit score mean?

A credit score is calculated after factoring in distinct parameters. They decide how simply you can get approval on your debt request. What a credit score does is it reveals your lenders the quantum of risk they require bearing upon approving your request for credit. You can check where you exactly lie on the spectrum by checking the score online.

Your score dominates your credit risk profile in the listed ways –

∙       Credit score from 750 to 850 represents your responsiveness towards the debt component. Your score in this range suggests you have been extremely careful in making debt repayments.

∙       Next, a score in the range between 700 and 750 is considered over average by credit rating agencies.

∙       Most individuals with a credit score in this range between 600 and 750 are looked upon as satisfactory and hold 50-50 chances of credit approval.

∙       In case your credit score is below 600, it may be extremely tough to avail of a personal loan.

In case you hold a low score, you must begin working to ameliorate your position. You must begin by first reaching a lender. Then you must form a favourable payment structure and address the same with proper planning. It is essential to remember that a credit score is just a prediction rating. They get designed to show your likelihood of conducting timely repayments. Thus, your score is best to keep a thorough check on your misdemeanour towards conducting repayments.

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When do you witness credit rejection?

Being approved for personal loans with low scores by banks or instant loan applications is a tricky process. At times, your loan application may get rejected owing to your credit history. In case you hold a low score and are looking to improve it, you must be aware of the basic causes of a low score. Additionally, you must be aware of ways to ameliorate it to avail approval for a personal loan of your preference.

Listed below are the causes and crucial ways to ameliorate your low score

A low score can result in loan rejection. Listed below are primary reasons for low credit scores –

∙       High credit usage – It impacts negatively on your credit score when you use an amount over 30 percent of your credit card limit. You must keep a check on your expenditures and be careful while handling multiple loans when maintaining your score.

 

∙       Various outstanding loan repayments – Before approving your credit loans, lenders usually look at your financial history. And when you hold a low credit score with multiple outstanding payments or debts, your loan application ultimately gets turned down.

 

∙       Applying for a loan even after witnessing rejections – Continuously applying for instant loan apps, even after being rejected once, will not assist your credit history. Once you place the application for a loan and witness rejection, this info is stored in your report. So, when you place the application for a loan with a lender in hopes of availing approval, the lender will go through such info. The creditor may even see your low score and turn down your application again. All this lowers your score even more.

What are the ways to ameliorate a low score?

A low score cannot allow you to avail a loan or any credit option in times of urgency. However, there are various ways by which you eventually can increase your credit score. Here are important ways to ameliorate your score and successfully apply for the loan through instant loan applications –

∙       Refrain from applying for various loans simultaneously – Are you one of those who have the habit of keeping various loans simultaneously. If yes, then you should look out for consolidating them and then turning them into single loans. This ultimately will make it simpler to make loan repayments at possibly lower rates and assist improve your score.

∙       Do not delay or miss out on any loan repayments – Make sure that you repay your credit card dues and EMIs on time. Missing or delaying repayments can lower your score exponentially.

∙       Check out your report periodically – Checking out your credit report simply helps determine whether your score is plummeting or improving. At times your credit score might stumble owing to an error. So, when you check your score periodically, this makes you completely aware of the info fed in your report. It endows you with a chance to fix your low credit score.

∙       Restrict the use of credit cards: Maxing out your credit card limit and continuously using multiple loans can make your score​ decrease​. Keep in mind that you must not repay minimum dues but instead completely clear your debts. This idea can assist you in enhancing your score. 

 

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