When you apply for a loan, banks look at your credit history in order to determine whether or not you can be trusted with the money. It is a tried and tested method that banks and other lending institutions use for processing all loan applications. So, if you think you’re going to need a loan in the future, it is important that you start working on your credit profile. This article will help you understand the concept of credit profiles in detail.
What exactly is a Credit Profile?
A credit profile is a detailed summary of your borrowing history. It details all the loans you’ve ever taken in your life, whether or not you’ve paid all dues on time, and how fast you’ve managed to reduce your debt. Essentially, it is a snapshot of your borrowing behaviour. It can also be viewed as an indicator of how responsible you are for your debts.
Credit bureaus and government-approved organizations contain all this data that they share with banks whenever you apply for a loan. The significance of your credit history cannot be overstated, and it is hence, important that you work on it.
What does Good and Bad Credit History mean?
Your credit history can be either good or bad. Let us see what each of them indicates:
- Good Credit History
Your credit history is considered good if you’ve never missed an EMI payment. A good credit history shows that you’re a responsible borrower, who repays his/her debt as soon as possible. It helps you avail of loans with banks and other financial institutions. They may even offer you attractive deals, charge less interest, and process your application in less time.
- Bad Credit History
If you’ve had a history of late payments, defaults on EMI, and credit card debt, your credit history is considered bad. Banks and NBFCs will be cautious to process your application, as your credit history suggests that you’re going to default on payments. Bad credit history might also affect your future loan applications, and could conclude in a rejected application as well.
Is a Bad Credit History the end?
Bad credit history will affect your current and future loan applications, but you can improve it as well. Here are a few ways to improve your creditworthiness:
- Never miss an EMI
The biggest reason for bad credit history is missed EMI payments. The only way to improve it is to start paying your EMIs on time. Set aside the required sum of money every month and do not touch it under any circumstance. Keeping it in an account that you don’t use a lot might help.
- Set payment reminders
There are many people who often forget their EMI date, and hence, miss payment. Avoid that by setting reminders on your phone. Every Android and iOS application of a bank has a reminder feature, which you can use to receive alerts about an upcoming EMI payment. Ensure that you set the alert a week or a few days before the actual payment day.