Getting a loan can be difficult if your credit score is low. Whether you are applying for a home loan, personal loan, or car loan, your credit score plays an important role. Lenders use it to decide if you are trustworthy and whether they should lend you money or not. If your loan is being rejected again and again, it might be due to your credit score. But don’t worry! You can fix it. In this article, we will explain in simple words what credit score mistakes you might be making and how to fix them.
What is a Credit Score?
A credit score is a three-digit number between 300 and 900 that shows how good you are at paying back money. The higher the score, the better your chances of getting a loan. In India, a score above 750 is considered good. This score is calculated based on your loan history, credit card use, repayments, and other financial habits.
Overview Table: Credit Score Basics
| Factor | Impact on Credit Score |
| Credit Card Bill Payment | High impact |
| Loan EMI Payments | High impact |
| Credit Utilization | Medium to High |
| Number of Loans Taken | Medium |
| Credit Age | Low to Medium |
Mistake 1: Missing or Delaying Payments
One of the biggest reasons for a low credit score is missing your credit card or loan EMI payments. Even one missed payment can affect your score. Lenders see this as a sign that you are not serious about repaying your debts.
How to Fix It:
- Always pay your EMIs and credit card bills on or before the due date.
- Set reminders or use auto-pay to avoid missing payments.
- If you are facing financial issues, talk to your lender. Some banks allow EMI restructuring or offer a grace period.
Mistake 2: Using Too Much Credit Limit
If you use too much of your credit card limit every month, it shows lenders that you depend heavily on borrowed money. This is called high credit utilization and it can lower your score.
Example: If your credit card limit is ₹1,00,000 and you use ₹90,000 every month, it’s seen as risky—even if you pay the full amount later.
How to Fix It:
- Keep your credit card usage below 30% of your limit.
- If your usage is high, try asking the bank to increase your limit.
- If you have multiple cards, spread the usage across them instead of using just one.
Mistake 3: Applying for Too Many Loans or Credit Cards
Every time you apply for a loan or a credit card, the lender checks your credit score. These checks are called hard inquiries. Too many hard inquiries in a short time can lower your score and make lenders think you are credit-hungry.
How to Fix It:
- Only apply for credit when necessary.
- If your loan gets rejected, don’t apply again immediately. Find out the reason first.
- Use pre-approved loan or card offers where the lender has already checked your score.
Bonus Tips to Improve Your Credit Score
- Check Your Credit Report Regularly: Sometimes, errors in your credit report can bring down your score. Check it every 6 months and report any mistakes to the credit bureau.
- Maintain a Good Mix of Credit: Having both secured loans (like home loans) and unsecured loans (like personal loans or credit cards) can help your score.
- Don’t Close Old Credit Cards: Older accounts show a longer credit history, which is good for your score. Keep them active by using them for small purchases.
Final Words
If your loan is getting rejected, your credit score could be the reason. But the good news is that it’s fixable. By avoiding the above mistakes and practicing good financial habits, you can improve your credit score within a few months. A better score not only increases your chances of getting a loan but also helps you get lower interest rates.
