bike loan When you apply for a bike loan, your credit score is one of the most critical factors lenders assess. This is because a credit score numerically represents your credit profile and ranges between 300 - 900. The closer it is to 900, the better your chances of a better offer.
While a score of 750 or above is optimal, a higher score can make you eligible for affordable credit. A lower score, however, can make access to credit challenging. Your credit score gives the lender insight into your credit behaviour.
Banking on this three-digit score and several other factors, financial institutions determine your two-wheeler loan interest rate, tenure and other loan terms. Hence, maintaining a good credit score is crucial when applying for a bike loan.
That said, improving your credit score is doable with simple measures. Continue reading to learn the simple ways to improve your credit score and get an affordable bike loan.
Rectify Errors in Credit Report
Your credit score may sometimes drop because of incomplete information or mistakes in your report. Before any other step, ensure the information on your credit report is accurate. You can generate a free credit report once a year from TransUnion CIBIL, Equifax, Experian, or CRIF Highmark.
Correcting errors or missing information may boost your credit score by a few points. An accurate representation of your credit profile makes you eligible for affordable financing through a bike loan. However, remember that the rectification error may take some time.
Clear Your Outstanding Debts
Having low existing debt is a crucial factor when talking about credit scores. A higher running credit can lower your credit score and hurt your bike loan eligibility. As such, paying your outstanding loans will improve your credit score. This is because it establishes good repayment behaviour while also increasing your repayment capacity.
Aim for Lower Credit Utilisation Ratio
Credit utilisation refers to the limit you have spent on your existing loans and credit cards. With the higher utilisation ratio, lenders are restricted from giving you a better offer on your bike loan. This is because it shows a high reliance on credit and an inability to manage finances.
Both increase your chances of making a delayed payment or defaulting, which is a risk for the lender. Therefore, you should reduce your credit dependency before applying for a bike loan. A credit utilisation ratio under 30% is ideal.
Focusing on your credit cards is the easiest way to reduce your utilisation limit. Paying your due credit card amount frequently can boost your score. You can also increase your credit limit to lower the ratio. However, this is viable only if you have a higher income.
Execute Disciplined Repayment
Lenders can also review your credit repayment behaviour and history from your credit report. Landers are more likely to offer a lower two wheeler loan interest rate if you have an excellent history of timely repayments.
This is because it shows that you can repay debt on time, reducing the lender’s risk. As such, you can improve your credit score by incorporating the habit of paying your EMI on time. You can set reminders or auto-debit instructions to ensure you don’t miss a payment.
Resist Re-Applying in a Short Span
Seeing a rejected application can be stressful, and you may get tempted to apply with another lender. However, you must resist doing that. Every time a lender checks your credit score or report, it registers a hard inquiry on your score.
These enquiries temporarily lower your credit score, but re-applying in a short span can hurt your score and eligibility. This is because frequent applications imply that you are credit-hungry and may not be able to control it, making you a high-risk borrower.
One of the best ways to move forward in this situation is to understand why your application was rejected initially. Work on it to improve your eligibility and adjust the loan terms, if required, before applying again. This will help you maintain an ideal gap between applications.
Opt for Lower EMIs
Your debt-to-income ratio also plays a role in your eligibility for credit. If you see that your debt-to-income ratio is high and availing a bike loan can crunch your finances, lower your ratio before you apply.
A lower debt-to-income ratio suggests that you can manage and repay a new debt, improving your credit score and eligibility. Ideally, your debt-to-income ratio should be under 40%.
It is important to manage repayments and even free up funds to take on additional debt. For the outstanding loans, you can increase the tenure to have a lower EMI.
However, you may have to pay more interest on the new tenure, so remember to take this into consideration. In addition, you can opt for a balance transfer to lower Interest rates and EMI.
Leverage a Guarantor’s Credit Score
While lenders allow you to apply individually, they also offer the option of co-signer or co-borrower. In the co-signer, the other person takes responsibility for repaying the loan if you default. In co-borrower, the other person also takes repayment responsibility but gets access to the funding too.
In both cases, the other person’s credit score and creditworthiness become an extension of yours, thereby improving your eligibility for a bike loan. You can also become an authorised user of someone else’s credit card to build your credit history, but it can take some time.
In either case, you need to ensure that the other person has a good credit score. You need to be responsible in your repayment as any misses will impact your credit score.
With these tips, you can improve your credit score gradually and get a better offer for a bike loan. However, improving your credit score requires commitment and perseverance. So, be consistent and disciplined in your efforts to build an ideal credit score.
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