Low Credit Score Can Make Loans Costly: Simple Ways to Improve It

G GOWTHAM
A low credit score can significantly increase the cost of borrowing, affecting your ability to secure loans at favorable interest rates. Lenders see a low score as a sign of higher risk, which often results in higher interest rates or loan rejections. Here’s what you need to know and how to improve your credit score.

1. Understanding Credit Scores

  • A credit score is a numeric representation of your creditworthiness, usually ranging from 300 to 900.
  • Major credit bureaus in India, like CIBIL, Experian, Equifax, and CRIF High Mark, provide these scores.
  • Factors affecting credit scores include:
    • Payment history (timely or delayed payments)
    • Credit utilization ratio (how much of your available credit you use)
    • Credit mix (types of loans and credit cards)
    • Length of credit history
    • Recent credit inquiries
A higher score (750+) helps secure loans at lower interest rates, while a lower score can make borrowing expensive.

2. How a Low Credit Score Impacts Loans

❌ Higher Interest Rates

  • Banks charge higher rates for individuals with poor credit scores to compensate for perceived risk.
❌ Loan Rejections

  • Lenders may reject applications outright if the score falls below their threshold.
❌ Lower Loan Amounts

  • Even if approved, loan limits may be reduced, limiting borrowing capacity.
3. Simple Ways to Improve Your Credit Score

✅ 1. Pay Bills on Time

  • Ensure credit card bills, EMIs, and other loans are paid before the due date.
  • Late payments are reported to credit bureaus and negatively impact your score.
✅ 2. Reduce Credit Utilization

  • Keep credit card usage below 30–40% of the available limit.
  • High utilization signals financial stress to lenders.
✅ 3. Avoid Multiple Loan Applications

  • Applying for many loans or cards in a short period triggers hard inquiries, lowering your score.
✅ 4. Maintain a Healthy Credit Mix

  • Having a combination of secured (home/auto) and unsecured (credit card/personal loan) credit improves score.
✅ 5. Monitor Your Credit Report

  • Regularly check your report for errors or fraudulent activity and request corrections if needed.
  • Use portals like CIBIL, Experian, or Equifax to stay updated.
4. Long-Term Benefits of a Good Credit Score

  • Lower interest rates on personal, home, and vehicle loans.
  • Higher loan eligibility and larger credit limits.
  • Better terms and flexibility from lenders.
Improving your credit score is a long-term financial strategy that saves money and expands borrowing options.

5. Key Takeaways

  • A low credit score can make loans costlier and reduce borrowing opportunities.
  • Timely payments, low credit utilization, and careful monitoring can significantly improve your score.
  • Maintaining a good score ensures better loan terms, lower interest rates, and financial flexibility.
💡 Pro Tip: Even small improvements, like paying off a credit card or clearing an old EMI, can quickly raise your credit score over a few months.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

For more interesting updates click and follow Indiaherald WhatsApp channel

Find Out More:

credit

Related Articles: