Numerous Indians currently have low credit scores and are unable to raise them because of a lack of knowledge. New credit users need to be aware that their credit score is regarded as the foundation of their financial stability. The average person must have heard a lot about the CIBIL score, but they probably don’t know what it means or how important it is. A person who has a bad credit score may suffer financial loss. People with good credit scores should exercise caution and often check their credit reports because their credit score may drop owing to inaccurate information given to the credit agency. Loan and credit card differentiation agreements frequently include things like money borrowed at a fixed interest rate, repayments that include principal and interest, late fees, eligibility requirements, amount restrictions, and other terms and conditions.
Difference Between Credit Card and Personal Loan
The key contrast between personal loans and credit cards is that credit card loans are pre-approve loans. The issuer already owns a credit card, therefore the bank is exposed to all of your financial and personal information. As a result, because they don’t need any additional paperwork, credit card loans are referred to as pre-approved. On the other hand, personal loans need approval, which is given based on the necessary paperwork and some qualifying conditions. Below is a summary of some additional differences between personal loans and credit cards.
- When a cardholder wants to borrow a little sum of money, credit card loans are the best option. For larger amounts, personal loans are more acceptable.
- Applications for credit cards don’t need any supporting documentation because the bank already has all the relevant details. A collection of necessary documentation must be presented in order for a personal loan to be validated.
- The credit card limit is the only factor that determines the maximum credit card loan amount that may be granted. The lender and the applicant’s income jointly determine the maximum personal loan amount.
- Credit card loans don’t come with any additional expenses besides interest rates. Personal loans include all hidden costs, such as processing fees and GST taxes.
- The credit card loan amount is directly deposited into the cardholder’s bank account. The applicant is paid in full for the personal loan in one lump sum.
Some Ways to build up your CIBIL score
Avoid late payments
Delaying any loan or credit card EMI instalment has a bad impact on your CIBIL score, thus you should avoid doing so. By setting up reminders, auto-paying instalments, and creating monthly task sheets, people can prevent late payments.
Review your CIBIL report regularly
This is the element that has the most impact on credit score. A person can verify their credit report for mistakes or inaccurate information. One can file a dispute and have the issue(s) fixed if there is any mismatch in the name or if a changed address has not been updated. Your CIBIL score will increase as a result of this exercise.
Maintain Credit Utilization Ratio
The credit-seeking individual should keep their credit utilisation ratio around 30% of their total credit limit. By distributing the cost of spending among a number of credit products, this goal can be reached. Your credit score will increase and be maintained as a result of reducing your credit use ratio, which will ultimately help you and increase your financial security.
Avail at least one credit product
Getting loans approved under their own names might be challenging for people who have no credit history. Even if they are approved for a loan, the interest rates will still be greater than those provided to those with credit histories. In order to keep your credit history and raise your credit score to 750 and eventually close to 900, it may be a good idea to obtain at least one credit line, such as a credit card.
For the most part, lenders accept scores of 750 or higher. Before applying for a loan or credit card, these methods should be carefully reviewed in order to obtain lending products at lower interest rates.
Avoid multiple or frequent enquiries
Avoid submitting many credit applications at once because this shows lenders that you are credit-hungry. When a loan application is submitted, a credit inquiry will always be made. Frequent loan applications reflect poorly on the applicant to lending institutions, increasing the likelihood that the loan will be denied. Therefore, only apply for new credit when you actually need it.
One of the most crucial elements in establishing financial stability is the CIBIL score. Knowing how to raise your credit score is crucial because doing so makes getting a loan simpler. People are having a harder difficulty keeping their credit ratings up in these dire economic times. However, you can prevent a decline in your credit score by heeding the above-mentioned guidelines.