According to reports, with COVID-19 hitting incomes and jobs, lenders have become more circumspect about the repayment capacity of borrowers and tightened norms. Those working in sectors directly affected by COVID-19, new borrowers, and those having low Credit Scores are the worst hit. Therefore, maintaining a good Credit Score is more important than ever.
Generally, a score of above 800 is considered excellent by the lenders and preferred for granting a loan or Credit Card to an individual. Even a 750 score will be considered good. Any score from 600-700 will signify that somewhere you have made mistakes and so lenders will be cautious. But if your score goes below 600, it’s a sign that you have not been disciplined enough to manage debt. This itself might lead to instant rejection of your application.
Here are a few things to remember.
Too Many Queries
Too many enquiries will reflect in your credit report negatively and lenders will be suspicious, especially when you are already repaying a loan. Go for a pre-approved offer where soft inquiries have already been made on your Credit Score. Unlike hard inquiries, this has no effect on your score.
Additional Reading:4 Ways A.R. Rahman’s Approach To Music Can Be Applied To Our Finances
Default in EMI
An EMI default is not a good thing, especially if you wish to avail a loan/ Credit Card in the near future. It jumps out at a lender when they look at your report. Default in recent times will have a higher impact than an EMI default more than two years ago.
Types Of Loans
The type of loans you avail is an important factor to determine your Credit Score. If you are heavy on high-interest unsecured loans like Credit Cards or Personal Loans, then it counts against you. But if you have a mix of secured loans like Home Loan and Car Loans, then the negative impact will be less.
Additional Reading: Credit Hungry Vs. Credit Savvy – The Differences
Outstanding Credit
If your outstanding balance on Credit Cards or loans has been growing steadily, then it means your repayment burden is increasing, which after a stage, can impact your score.
Most importantly, check your Credit Score regularly. This helps you to keep track, work at improving it and also report mistakes, if any. Download our mobile app and do it for free.