Applying for a personal loan? Follow these steps to check your credit score

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Applying for a personal loan? Follow these steps to check your credit score
Applying for a personal loan? Follow these steps to check your credit score

New Delhi : A personal loan can turn out to be a blessing in times of need. Whether it is a health emergency, an urgent travel requirement or a simple monthly cash crunch, a personal loan can be your cushion to fall back on. But like all other loans, a personal loan requires the borrower to meet specific eligibility criteria. Let us assume you fit the personal loan eligibility stated by the lender perfectly. In that case, you can get a higher amount approved and avail the loan on a lower rate of interest. Commonly, the criteria for a personal loan are:

A good credit score with a healthy credit profile

A good repayment capacity with a stable income

A lower debt-to-income ratio

In this blog, we deal with the first factor — the credit score. Before we tell you how to check your credit score, let’s first understand what a credit score is.

What is a Credit Score?

A credit score is a score between 300-900 awarded by credit unions such as CIBIL and Experian, an indicator of your creditworthiness. For example, a CIBIL score of 750 or above is considered ideal for Fullerton India personal loan.

A medium credit score (below 700) shows that you are a subpar borrower. It is an indicator of your low borrowing capacity (which can be for multiple reasons) to the lender. On the other hand, a score above 750, shows that you are a premium borrower with a healthy credit mix and an adequate repayment capacity. For lenders, borrowers with a low credit score pose more risk of default. Hence, the loans offered to such borrowers come with a lesser approved amount of approval and a high-interest rate to compensate for the risk.

Your credit score is affected by the following factors:

Payment history: The timeliness and regularity of your credit card and loan repayments are considered when calculating your CIBIL score. A single miss can lower your score significantly.

Multiple enquiries: If you have been applying for loans and credit cards with multiple lenders recently, your credit score dips and lenders consider your profile risky. 

Credit-utilisation ratio: Multiple debts and high credit card utilisation show a lower capacity to repay any new loans, and also indicates risky financial behaviour. It affects your score negatively.

Credit mix: A balance of secured loans (loans with mortgage such as car loan, home loan, loan against property) and unsecured loans (personal loan, small business loan) is considered healthy. Such a mix will have a positive effect on your score.

How to Check your Credit Score?

Most credit unions allow you to check your credit report once a year for free. This score is official and accurate. You can raise disputes online if you find any discrepancies or inaccuracies that reflect on your credit report. You also get access to personalised loan, and credit card offers based on your credit score.

To check your free credit report, log on to any of the credit unions' websites.

Look for a link that says 'Check Your Free Credit Score.'

Fill up the form on the subsequent page which asks for your personal information such as full name, date of birth, PAN or Aadhaar card number, etc. Click 'Submit'.

Some credit bureaus may offer your credit report with a score instantly. Others might take up to 24 hours and send you a notification of your report via email.

If you want to check your credit score more than once in a year, credit bureaus offer premium plans which you can buy for a nominal fee.

How to Improve your Credit Score?

If you're looking for a loan, your credit score is the first thing creditors check. So, you must check your credit score and improve it if it is not meeting the mark. Here are some ways to do so:

1. Pay your bills timely: Your past payment performance predicts your future performance. You can positively influence this factor by paying all your bills timely. Paying late can lead your credit score to plummet significantly.

2. Maintain your credit utilisation ratio below 30%: The credit utilisation ratio is calculated by adding all your credit balances and dividing that amount by your total credit limit.

3. Consolidate your debts: If you have multiple active debts, your creditworthiness can be under suspicion. Consolidating your loan not only increases your chances of getting a personal loan approval but it also saves you interest on personal loans.

4. Don't close unused credit cards: Keeping unused credit cards open as long as they do not incur annual fees can improve your credit score.

Improving your credit score can help you get an easy personal loan from Fullerton India. The foremost step is to choose a viable credit option for building the credit score. Moreover, paying your dues on credit card and loans on time is another crucial step.