How Can You Get a Good Credit Score for Faster Loan Approval

All banks take various parameters into consideration before handing out a loan to the prospective customer/borrower. Some of the factors that are evaluated include job profile, salary range, age, and finally - credit score, among other parameters. Apart from the first three factors, it is vital for anyone thinking of applying for credit to hold a very good credit score. Before we delve further, let us first understand what a credit score is.

What is credit score?

Credit score is a numerical indicator that tells a lender whether or not you will be able to repay your debt. This is a three-digit figure that ranges from 300 to 850. The score is computed by credit bureaus and this is assessed based on how you are currently handling any type of existing debt.

What is a good credit score?

It is important for us to understand that there are different types of lenders and different categories of loans, and each will have their own standard.

• A credit score usually ranges anywhere from 300 to 850
• Generally anything above 700 is considered good
• Anything below 400 or 300 is not a good score and is a red flag for lenders who are assessing your credit record and profile

Building a good credit score

Building a good credit score is not rocket science. All it takes is a little bit of awareness, discipline and commitment when it comes to handling finances. Remember that you cannot build a credit score in one night. It takes a lot of effort and financial planning to do the same.

• A good credit ratio is vital: Credit ratio refers to the proportion of loans that you have. This basically refers to the type of loans you have. It should ideally be a ratio of debt that is backed by some asset like a home loan for example and asset-free loans such as personal loans, education loans. Banks will ideally prefer to grant loans to people who have asset-based loans. This is why any prospective borrower should not already have piled up or overdue credit card bills or other types of unsecured credit. The key here is balance between the various types of debt. A good credit score depends on the right balance between different classes of debt.
• Keep credit utilisation in mind: The other thing that you have to keep in mind is a good credit utilisation ratio that does not make a lender cringe. Credit utilisation ratio is nothing but the percentage of the credit card limit that has been used by you. Most reputed financial institutions look for a figure that is anywhere between 30% to 40%. This means that if  your credit card limit is Rs.50,000, you should be using only 30% of it, which works up to Rs.15,000. Your credit score will definitely take a hit if you cross this level of spending.
• Avoid multiple loan applications: It can be very tempting to apply for different credit cards or send out multiple applications for that personal loan. Because your approach is- ‘who knows, I might get approval from at least one of the lenders’. This approach, sorry to say, is not the right one. So, this is how things work. Whenever you send out an application seeking credit, the lender will seek out your credit report, which will be in the form of an enquiry. So, if there are numerous enquiries, you will be looked at as ‘credit hungry’. This way, you will also jeopardise your chances of getting loans at lower interest rates.
• Keep tabs on your credit report: It is very important for all of us to keep a close watch on our credit reports. Not only will this give us an idea on where we stand, it will also help you take the required steps to make amends if your score is not very great. Apart from this, you can also make corrections if there is any types of error in your report. Sometimes, credit report institutions may get confused with someone with the same name. This is why it is important for every individual to seek out the report and take a good look at it.
• Make payments on time: If you own a credit card, you know the drill. If you have any other type of debt, you know that it is very important to keep up with the EMIs. Basically, any type of credit that you have, you have to be able to make regular payments towards the same. At any point of time, if there are any defaults in the payments that you make, there is a likelihood that you will damage your credit score.
• Do not fuss over it: Yes! We mean it. While it is important to make an effort to build a good credit score, do not fuss over it so much. Remember, you are being watched and any sudden steps you take to repair your low score, will also be noted.

Advantages of a good credit score:

1. A good score will give you access to all types of loans in the future
2. Apart from getting a loan approval, the cost of credit will significantly come down as those with a good credit score will get to avail loans at lower interest rates
3. A good credit score means that you will have the opportunity to get a higher loan amount approved

The last call

If you have a good credit score, you will be one step closer to getting that home loan approved, and at a much cheaper rate. Essentially it is all a trust building exercise between you and the prospective lender. So, the next time, your credit card bill arrives, do not pay the ‘minimum amount due’. Pay your bill and reap the benefit of a good and ideal credit score. Also, do not go by just one credit bureau or bank, check your credit score here with more than one entity to be just that much sure.