Although NBFCs use multiple parameters to determine an applicant’s eligibility, they largely depend on the applicant’s credit score for personal loan approvals. Whenever lending institutions receive a loan application, they check the applicant's credit score to determine their credibility, based on which they decide the loan amount and interest rate. The higher the score, the better the loan offer. However, the minimum credit score requirement for a Personal Loan is 630.
An individual with a credit score of 500 may apply for a personal loan for a low credit score. However, the lending institution might reject the application downright or will offer a smaller loan at higher interest rates.
In this article, we will discuss how to take a credit score of 500 to 630 and get the most favourable terms and conditions.
Is it Possible to Leap from 500 to 630 Overnight?
Having a low credit score of 500 is not the world's end. With the proper steps taken at the right time, it is possible to improve the credit score quickly. Disciplined credit management is crucial to improve credit scores. Although fixing a score of 500 to reach 630 is not possible overnight, an average period of 4-12 months is enough to restore it in a reasonable time. All an individual needs is commitment, self-discipline, and patience to achieve the credit goal.
Steps to Improve the Credit Score
Here are a few important steps to improve your credit score from 500 to 630:
- Know Where You Stand: The first step is to check your credit score and see where you currently stand. It reflects the credit behaviour and suggests where you need to improve. Besides, request your credit report and look for any errors to correct them. If the score was low due to a mistake in the credit report, eliminating them from the report will instantly boost the credit score.
- Bring Consistency in Your Payment Habits: Chances are high that an individual with a low credit score is habitual of missing EMI and bill payments. Defaulting on payments adversely affects the credit score and reduces creditworthiness for future loans. Tools like NEFT mandates, auto-debit and standing instructions, etc., automatically ensure timely monthly payments. For cheque payments, ensure remitting the cheque a few days before the last date to leave room for the clearance period.
- Limit Credit Utilisation: Minimising credit card use is an excellent way to boost the credit score from 500 to 630 quickly. Use not more than 30% of the available credit limit to reduce the credit utilisation ratio and raise the credit score. Using more than 50% of the credit limit will shoot up the current ratio (CUR) and bring the credit score down. Maxing out the credit cards means the user has trouble managing finance and cannot pay the credit card bills in full. Consequently, that causes the scores to decrease.
- Close Long-Standing Accounts that Give Bad Credit: Keeping multiple liabilities on the credit report adversely affects the credit score. Consider combining your small/long-term loans and credit card debts and paying them by taking a Personal Loan for debt consolidation. It will save you from the hassle of remembering and making multiple payments and help improve your credit score for taking a personal loan in future.
- Avoid Multiple Loan Applications in a Short Duration: Making multiple credit enquiries within a short period does not bode well for the credit score. Imagine applying for a credit card, Home Loan, and Personal Loan subsequently within a year. What will it look like to a lending institution? It indicates that the applicant is hungry for credit and relies on different credit types for regular expenses. It takes a hit on creditworthiness, bringing the credit score down.
- Request a Credit Limit Increase: Contact your credit card provider and request to increase your credit limit. Increasing the credit limit will allow better credit management and reduce the credit utilisation ratio that affects the credit score.
Reputed lending institutions like Clix Capital provide numerous benefits to individuals with a credit score of 630 or above. These include quick loan approval, low-interest rate, less credit risk, and more favourable terms and conditions. A good credit score for a personal loan generates a favourable impression about your creditworthiness, allowing lending institutions to approve your loan quickly at the lowest interest rates. A high credit score indicates that you can manage credit responsibly. As a result, lending institutions issue bigger loans with the best deals and offers.
Amaira sharma is finance expert and former business growth strategist who has more than 8+ years experience in the industry, now she helps others to get better financial stability and standards. She loves to write useful tips on personal finance and businesses.