If your credit score is low and you want to improve it, one of the most effective ways is to start small and build it over a long period of time. For instance, if raising ₹5 lakh is not possible, then you could start with a humble ₹50,000. After you repay the loan on time, you would be one step closer to raising a higher loan amount.
Once your credit score improves, you will be entitled to raise a loan of a higher amount. However, the bigger problem arises when you are not eligible to raise even a small amount of loan in the first place.
This could stem from two different scenarios:
Scenario I: You have a low credit score: If your credit score is low, you could build it gradually by applying for a lower denomination loan or credit card or both. Then gradually, you could prop up your credit score so that you could raise a bigger loan after 6 months to one year.
Scenario II: There is no credit history: There could be a situation where you do not have a credit score either because you are a student or because you do not have a credit history. In this case, you could start with a secured credit card which is issued against collateral of fixed deposit.
Advantages of taking a small loan
It is advantageous to take a small personal loan. Aside from building credit history, it diversifies the credit mix. These are some of the broad advantages of taking a small value loan.
I. Credit history: If a borrower doesn’t already have much credit history, a small loan adds to the credit profile, showing to lenders that they can handle borrowed money responsibly.
II. Diversifies credit mix: Credit information companies such as CRIF High Mark also consider having a mix of credit types which include credit cards and loans etc. A small personal loan can help improve this mix.
III. Responsible borrowing: A small loan taken and closed properly builds a track record of responsible borrowing, making you look less risky to banks.
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