A personal loan can be very helpful in times when an individual is facing a cash crunch. It provides the required funds for the expenses at hand, and the borrower can then repay the loan comfortably thanks to suitable repayment tenures provided by lenders. However, before applying for a personal loan, one needs to make sure that the loan is affordable. This is where borrowers need to focus on the personal loan interest rate that is being offered, as this rate can have a major influence on the loan’s monthly instalments.
Now, while each financial institution offers different personal loan interest rates based on their terms and conditions, borrowers can negotiate for a better deal, especially when they have a good credit score. Having a high CIBIL score will not just increase the chances of lenders offering lower personal loan interest rates, but also a host of other benefits too.
For those wondering how they can improve their credit scores before applying for a personal loan, here are four tips that can help!
- Avoid submitting multiple loan applications
There are some borrowers who send out multiple loan applications. What they do not realise is that making multiple credit inquiries ends up affecting their credit scores. A borrower should first check their personal loan eligibility with a particular lender before applying for a loan. This way, they can decide whether the loan amount is sufficient or not.
- Keep your credit utilisation low
Maxing out a credit card is never a good move. When an individual uses their credit card to the maximum limit, this gives an indication to financial institutions that they are credit hungry. Now, this is not an ideal scenario for someone who is looking to apply for a personal loan. This is why it is advisable for individuals to keep their credit utilisation low, especially if they are looking to apply for a personal loan. Financial experts suggest that one should not exceed 15% to 30% of their credit card limit.
- Make payments towards bills/EMIs on time
It is never a good idea to miss out on payments that are due. Even delayed payments can hamper one’s credit score. It is considered best to clear any outstanding dues as soon as possible and clear all bills on time without any delays. This is an effective way of building one’s credit score.
- Avoid closing old credit accounts
It is beneficial to have a long credit history, as this can help in improving one’s credit score. If a borrower has an old credit card with a good credit history and chooses to close it, they are losing out on building a good CIBIL score for a personal loan. This is why it is advisable to keep old credit cards active.
Ideally, financial institutions prefer borrowers to have a credit score of 750 or more. With this score, borrowers will not just get a low personal loan interest rate but also a higher loan amount and a flexible repayment tenure.