A credit score is based on analysis of a person’s credit report. Lenders, such as banks and credit card companies use credit scores to evaluate the potential dangers posed by lending money to consumers and to prevent losses due to bad debt. Hence, if you are looking to apply for a personal loan, you must first establish a favourable credit history. This will not be a difficult job if you have some extra cash in your account or own a functioning asset. You can either get a secured loan against your savings through fixed deposits, or the asset. Getting a secured loan is extremely important for your credit score, because higher proportion of unsecured loan gives an impression to the credit bureau that you have to service debt with high interest rates. This will consequently result in a lack of creditworthiness as calculated by the credit bureau. So, here are some smart tips to build credit score with secured loans:
Building Credit with Savings-secured loans
While most secured loans need you to put a car or property as leverage, savings secured loans require you to put cash or a certificate of deposit as collateral. You may either get a loan equivalent to your savings, or 80-90% of your savings. Once your loan application is approved, the bank would prohibit you from withdrawing your savings. Next, you need to start repaying the loans with monthly instalments, and it is extremely crucial that you do not miss out on any monthly instalment. If you fail to pay one instalment in time, the bank would use your savings for the repayment of the loan, and it would be another deadly blow on your credit score.
If you are in an extremely frail situation with respect to credit scores, it might be difficult for you to acquire credit in order to rebuild your credit history. Savings-based loans will be able to bail you out of such situations because they are easily available, have low interest rates, and you have complete freedom of choice about how you would like to use the loan amount. But the drawback is that if you miss one monthly instalment you run the risk of being treated as a defaulter and lose your collateral too. So, before applying for credit it is advised that you set aside a certain amount for paying the monthly instalments.
Build Credit Score with Loans against Property
You may also opt for a loan against property, where the loan is disbursed by the financial institution against a property pre-owned by the borrower. The rate of interest is extremely favourable in this case, and you can expect to get up to 50% of the value of the property you put up as collateral. Also, because the bank will be obliged to report this loan to the credit bureau, your financial stability is recorded and your credit scores are bound to improve.
Building Credit with Secured Credit card
The final point in building credit score tips is about how you can place a request to secure an asset in exchange for a secured credit card. However, you must remain conscious about not overstepping your credit limit or your score will decrease further.
These are some of the smart tips by judicious use of which you can improve your credit score with secured loans. For any loan requirements arising from your immediate financial emergencies, reach out to our team at Finserv MARKETS, and waive off your troubles of cash crunch, today! What’s more? With Finserv MARKETS, applying for a Personal Loan is easy, quick and completely hassle-free and can be processed right from the comfort of your home. So don’t wait, head over to our website and let us help you take care of all your financial worries.
“Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere”!