A Personal Loan offers an easy and effective way to meet your immediate financial requirements. Today, getting a Personal Loan has become easier than ever before. All you need to do is submit your application for the loan along with relevant documents online. Once a financial institution verifies your details, they promptly sanction the loan. But are you aware your credit score can impact your eligibility for a low-interest-rate Personal Loan? Yes, that’s true!
Read on to know how your credit score can impact the interest rate of your Personal Loan.
Relation Between Your Credit Score and the Interest Rate of Your Personal Loan
Have you ever wondered what does your credit score signify? It signifies your creditworthiness. Financial institutions analyse your credit score to determine your capability to manage your finances. They use this score to evaluate the probability of your repaying the loan on time.
Your credit history enables them to know how well you have handled your finances in the past. This offers them a good insight into your expected credit behaviour in the future.
In short, your credit score plays a crucial role in a financial institution’s decision to offer you a loan. Further, this score also influences their decision to set an interest rate for your loan.
What Should Be Your Credit Score for Securing a Low-Interest Rate Personal Loan?
A credit score can range between 300 to 900. Every financial institution has its definition of a good credit score. Usually, lenders regard a credit score of 700 or more as good. It can help you to portray yourself as a creditworthy borrower. However, whether it’s enough for you to be eligible for a low interest rate Personal Loan depends on your lender.
Also, your lender will consider other factors while deciding your interest rate. Some of the common factors can include the following:
- Monthly salary or income
- Job profile
- Repayment history
- Debt-to-income ratio
You can check your eligibility for a Personal Loan by using the PL eligibility calculator online.
Tips To Improve Credit Score
It’s a good idea to check your credit score before applying for a Personal Loan. If you find you have a low credit score, you need to analyse your credit report. This will help you to recognise the areas where you can make improvements.
Here are a few tips to improve your credit score:
Make Repayments on Time
Always repay your EMIs and credit card bills on time. If you delay your payments, it can impact your credit score. You may also have to pay penalties or late payment charges. So, it’s a good idea to set a reminder on your phone and avoid delaying your payments.
Maintain a Low Credit Utilisation Ratio
The credit utilisation ratio is the amount of credit you use divided by the total credit amount available. Maintaining a low credit utilisation ratio suggests you can handle your finances well. Try to maintain this ratio at or below 30%.
Check for Errors in Your Credit Report
If your credit report has errors related to repayments, credit history, identity, etc., it can affect your credit score. This makes it essential for you to study the report thoroughly and fix any errors if they exist.
Increase the Limit on Your Credit Card
Try to increase the limit of your credit card by requesting your bank or card issuing authority. Increasing your credit limit will enable you to bring down your credit utilisation low, and this, in turn, will help you to increase your credit score.
Avoid Closing Old Credit Accounts
It is better not to close your old credit cards if they have a good credit history. Consider keeping the cards active even if you no longer use them. This will help you to maintain a long credit history with a good track record.
The tips in this article can enable you to improve your credit score. But remember that a good credit score isn’t the only eligibility criterion for getting a Personal Loan. A PL eligibility calculator will help you check your loan eligibility. So, follow these steps and apply for a Personal Loan to meet your financial requirements.