Congratulations! You received that bonus which adds up to your corpus that you were saving up for the downpayment of your dream house. You also secured to bag that promotion a few months back which will help you afford the EMI. You either apply for a home loan online or confidently walk to your preferred bank’s nearest branch to discuss about home loan eligibility. All going well so far. You are looking forward to go home and celebrate with your family. Life has never been so good.
However, there is a problem. The bank cannot lend the required amount. And why is that so you ask! Your salary is enough to afford the EMI. The bank responds by stating that your credit score is low.
And there are various reasons why the score is low:
- In the past you had only paid the minimum balance on your card multiple times
- You had missed making a few EMI payments on time for that vehicle loan you had taken a couple of year back
- Remember those 4 credit cards which you were using at one go?
- And of course that personal loan which you were forced to take for going on an international holiday
There isn’t a need to worry. Thankfully there are several methods by which you can improve your credit score:
Access and Analyse your credit report:
The first thing to do would be to apply for your credit score and thoroughly scrutinize it. Chances are that due to an error, even though you may have paid off a loan in full, it might be still being shown as pending. Or you may have made an EMI payment on time but the report shows that you haven’t. You can get these errors corrected to improve your credit score.
Clear off any outstanding amount on your credit card:
Immediately pay off any outstanding amount which is due on your credit cards.
Make sure that all your EMIs are paid on time from henceforth. Doing this consistently will hike your credit score up.
Proper utilization of Credit card limit:
Remember to never exceed 30% of credit utilization. Suppose you are finding it difficult to do so, you can negotiate with your bank to increase the credit limit to an extent which will enable you to comfortably stay within the 30% limit.
Avoid applying for multiple unsecured types of credit in short time span:
Whenever you are applying for credit cards or personal loans, the information not only is received by the bank but also shared with credit rating agencies. You may be perceived as a credit hungry individual which could have an adverse impact on your credit score.
Do not be a guarantor:
There always comes a time when somebody might request you to be a guarantor for the loan they have applied for. You must avoid this at any cost as non-repayment of dues by the borrower can heavily impact your credit score.
Follow these practices and you would find your credit score improving. Be patient and give it anywhere between 4-12 months to see the results. This period can also be used to save up a little more and you may find yourself applying for a slightly lower amount as home loan.