Your friend has just bought a great car on a bank car loan. Your neighbour did that a few months ago, and so did your cousin. But, for some reason, you don’t seem to have much luck getting a loan approval for your car.
A low credit score could be the reason banks are unwilling to extend you a loan.
What is credit score and how does it affect my ability to get a car loan?
Banks use a credit score to evaluate your credit-worthiness. The higher your score, the better your chances of getting a loan.
In India, the CIBIL score is the most popular. CIBIL is a credit information company, and its score is a three-digit number that ranges from 300 (poor) to 900 (good). As a thumb rule, banks consider a CIBIL score of 750 or higher credit-worthy. A score of 650 or less is deemed too low to be given a loan.
The CIBIL score is based on your payment history across loans and credit cards.
So how do I improve my car loan credit score?
Step 1: Know your credit score: To improve your credit score for a car loan, you must first know your score. You can request yours online via the CIBIL website. Your score will be accompanied by a credit information report, which is a compilation of your credit history.
Step 2: Check credit history: Read through credit information report carefully. Look for errors. For example, you may have paid off a loan, but it shows as open in the report, or it may mention a loan that you never applied for.
Step 3: Report error: If there’s an error, CIBIL has a process for you to rectify it.
Step 4: Practice prudence: If there’s no error, and your CIBIL score is low, then you need to improve your credit-worthiness.
- If you have defaulted on any payment or loan, settle that first
- Make sure you are not behind on any of your loan repayments or credit card bills
- Don’t apply for too many loans at the same time
- Use your credit card prudently – avoid maxing out your card limit every month
With discipline, you can improve your credit score for a car loan over time. And you may, one day soon, find yourself in the driver’s seat.
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* Terms & conditions apply. Loan disbursal at sole discretion of HDFC Bank Ltd.
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