Must Ask Questions Yourself If You Have a Poor Credit Score

June 3, 2022

Loans and credit cards are extremely important in the world of personal finance. All of these things assist us in meeting critical financial objectives, dealing with financial emergencies, maintaining liquidity, and raising funds for business expansion and other goals. Mismanagement of these credit facilities, on the other hand, might have a negative impact on your financial health, and the credit bureau would lower your credit score.

Here are some of the most important questions to ask yourself about various credit-related habits that you may have that are harming your credit score:

Is it common for me to end up spending more money than I have available to repay on my credit card?

When customers spend more than they can afford to repay on time and in full by the bill due to date, they are more likely to take the easy way out by repaying only the minimum due amount, which is typically 5 percent of the total outstanding amount, rather than the whole amount. Although paying only the bare minimum amount due by the due date will prevent you from incurring late payment fees, you will still be subject to significant finance charges on any remaining unpaid balances. Also, remember that when you check your credit report from top credit rating agencies in India,

In the event that I have trouble paying timely and complete credit card payments, what steps can I take to resolve the situation?

If you are having difficulty paying off your credit card debt on time and in full, you should consider converting the entire bill or a portion of it into EMIs. The interest costs of such EMI conversions are significantly lower than the high finance charges, and the repayment tenures are up to 5 years, making them a viable option.

When you convert your outstanding credit card bill into EMIs, either in full or in part, you are able to make repayments at a significantly lower interest rate and in smaller instalments based on your repayment capacity while also continuing to benefit from the interest-free period on new card transactions during the conversion period. Remember that you can check your credit score on the website of any of the four credit bureaus or on numerous financial service portals that provide the service of credit reports from top credit rating agencies in India. This is vital to determine whether your good credit repayment efforts towards credit score development have been reflected in your score or not.

Is a credit score taken into consideration throughout the credit approval procedure for loans or credit cards?

The credit score check of applicants by fetching credit reports from the credit bureau is one of the first and most important stages conducted by lenders during the loan and credit card acceptance process in order to determine their credibility and past payback history. Applicants with a strong credit score, which is typically considered to be 750 or higher, have a higher probability of being approved for a loan than those with a poor credit history.

Apart from being a critical loan and credit card eligibility factor, a credit score is also increasingly being used as the basis for setting lending rates, as lenders increasingly turn to risk-based pricing, in which applicants with higher credit scores are offered preferential interest rates, as demonstrated by the recent rise in defaults. Therefore, having a strong credit score not only increases your chances of being approved for credit but also helps you save money on your credit card bills.

How can I improve my credit score and attain good financial fitness?

Credit scores can be improved by adopting healthy financial habits such as regular repayment of credit card bills and EMIs, keeping your credit usage ratio under 30%, closely monitoring co-signed/guaranteed loan accounts, and maintaining a healthy credit mix of debts. Following the completion of these actions, these individuals may notice a steady improvement in their credit score when they perform periodic credit score checks, such as once a month.

Is it necessary for me to evaluate my credit report on a regular basis?

The credit bureau assembles a variety of data and computes your credit score mostly on the basis of the information included in your credit report provided by lenders and credit card issuers, among other sources. Inaccurate information contained in your credit report, which you fetched from top credit rating agencies in India, might have a negative impact on your credit score. When you run a credit score check, it is especially possible that you may notice a sudden or unexpected decline in your score.

This is because of these inaccuracies. Regularly reviewing your credit report will help you identify any inconsistencies, whether they are due to clerical errors on the part of the bureau or the lender/card issuer or if they are due to a possible fraudulent credit transaction on the part of the agency or lender/card issuer. Indian consumers are entitled to one free credit report per year from each of the four credit agencies operating in the country.

What is the significance of comparing loan offers from different lenders before filing a loan application? 

Each of the top credit rating agencies in India has different criteria for calculating your credit score. Similarly, each lender assesses credit risk differently, so the chances of receiving a loan or credit card approval can fluctuate significantly. Additionally, some lenders may have more lenient loan eligibility requirements when analysing loan applications than other lending institutions. A similar phenomenon occurs in terms of interest rates and other fees and charges charged by lenders, which can fluctuate significantly depending on the cost of financing.

For all of these reasons, it is critical for loan applicants to evaluate loan offers from as many different lenders as possible before submitting their final loan application. They should begin their search by enquiring about loan offers that are available from banks and non-bank financial institutions (NBFCs) with which they already have consumer ties. Then, using it as a baseline, you may examine the rates and terms offered by other potential loan providers. Prior to submitting an application to any lender, remember to always check your credit score from at least one credit bureau or, if possible, from all top credit rating agencies in India to ensure that at least your credit score will not be a reason for rejection or trouble in getting your loan approved.