9 ways to use credit card properly!

Personal loan is the most preferred unsecured loan. Any individual can take personal loan ranging from Rs 10,000 to Rs 10 lakh depending upon his/her financial background and credit score. But low credit score often hampers the chance of getting personal loan at a low interest rate. Personal loan can be processed within a couple of hours with minimum documentation. If you need some emergency money, personal loan can become a saviour. But low credit score and a few other reasons can adversely affect the chance of getting a personal loan. Money9 offers nine-point discussion on how you can improve your eligibility for personal loan quickly.

Improve credit score

To get personal loan easily one should take care of his/her credit score. A high credit score always gives an advantage. A credit score of 700 and above by CIBIL can project you as a responsible borrower deserving quick sanction with low interest rate. Sound repayment history of home loan/personal loan in the past 12 months adds significant weightage.

A credit score less than 700 implies that you do not have a clean repayment record which would make it tough to access credit.

Pay all bills on time

Payment of credit card bills also significantly affects your credit score. If you pay bills in time, it will have a positive effect. Untimely and irregular payment would have an adverse effect. Currently, lenders give weightage of the payment of mobile bill, phone bill, school fees payments etc to calculate credit score.

Therefore, ensure that you clear all your dues in addition to loan EMI’s, credit card dues on time.

Apply for joint loan

In case, you do have a working spouse, you can even apply for a joint personal loan to increase your loan eligibility as it will increase the overall household income and give much better comfort to the lender.

Joint loan application increases the chance of repayment in time which originally makes a positive effect on credit score.

Long-term tenure

At the time of applying for a personal loan, you can either choose short-term or long-term personal loan tenure. Short term tenure lasts between one to three years, whereas a long-term personal loan can be tenured for three to five years. A major advantage of long-term tenure is that the EMI amount gets significantly reduced and it also enhances your loan eligibility. This will make repayment comfortable.

Do not apply for multiple loans

When you apply for a personal loan, lenders make in-depth inquiry with a credit bureau to estimate your default risk. If you apply for several loans simultaneously, all the lenders will make multiple inquiries on your credit report, which will eventually reduce your credit score. So, it’s better to compare lenders beforehand and apply for one that best fits your requirements.

Reduce debt-to-income ratio

Before you apply for a personal loan, ensure that you pay off your existing debts and credit card bills to reduce your debt-to-income ratio. Your current debts and credit card dues make you a vulnerable borrower.

Ideally, the total amount of EMIs you are paying at present should not be more than 40% of your monthly income. If it is more than that, pay it off before making a new loan application.

Enlist all your income

Lenders also look at your monthly income to measure your repayment capacity. Therefore, while filling up the personal loan application form, you must mention not only your regular salary but all your additional income sources if any.

Submission of all documents

While applying for a new personal loan, submit salary slips, form 16, PAN, Aadhaar and other important documents to the bank. In case of inconsistency of such information, as provided by you in the loan application, there is a high chance of rejection or downsizing of the loan.

Choice of lender

Choose your lender wisely. First work out how much loan you need and then select the EMI period. It will give you an idea of the size of the EMI. Now compare between lenders and take a final decision. Go for the lender that offers smaller EMI. Even Rs 50 a month should make a difference.