Ability to get a loan depends on how one has dealt with credit in the past. A low credit score would mean constraints while getting a higher loan amount sanctioned for a critical purchase. Hence it is important that one has a reasonable credit behaviour with good repayment track record.

Create a credit history

Not taking any credit or loan in the past does not mean one has a good credit score. In fact, if there is no data that can track the credit behaviour of the customer, the credit score in such cases tend to be on the lower side. Hence it makes sense to use the credit card diligently, take loans over a period of time for short and long term to create a good credit history. This helps the customer avail a competitive rate of interest and /or quantum for a larger loan.

Repayment track record

To create a good credit history, one should follow healthy credit repayment habits, by paying credit card bills before due dates and timely payment of instalments for different loans. Setting up reminders and creating auto debit mandates for such payments help timely action and thereby increases the credit score.

Check loan quantum availed at a time

One should make sure that while loans are availed over a period of time, they avoid taking different forms of credit at the same time. For instance, an outstanding vehicle loan, along with an EMI for credit card dues and personal loan at the same time may reduce the ability to avail more credit. It is prudent to close one loan and then take the next one to show enough liquidity and ability to repay loans on time.

Points to note

  • Multiple enquiries for loan to different lending agencies also affects the credit score negatively.
  • If there are any data errors in the credit report which affects the credit score, one can apply for rectification of the same with the credit rating agency.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

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We Fintax360 team simplify finances and taxes for millions of Indian businesses and people. We educate them about finances, taxes and improve their relationship with money.

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