Low Credit Score Can Make Loans Costly: Simple Ways to Improve It and Mistakes You Must Avoid

If you are planning to take a loan—whether for a home, car, education, or personal needs—your credit score can significantly impact both approval and cost. A low credit score not only reduces your chances of getting a loan but can also make borrowing far more expensive. Financial experts warn that a score below 600 often raises red flags for banks and non-banking financial companies (NBFCs), leading to higher interest rates, lower loan limits, or even outright rejection.

Understanding how credit scores work and taking timely steps to improve them can save you a substantial amount of money in the long run.

Why a Credit Score Below 600 Is a Serious Problem

A credit score reflects your past borrowing behavior and repayment discipline. When your score falls below 600, lenders view you as a high-risk borrower. This means they fear delays or defaults in repayment.

As a result, lenders may reject your loan application altogether. Even if the loan is approved, it usually comes with stricter terms—higher interest rates, shorter repayment periods, or reduced loan amounts. Over time, higher interest rates can significantly increase the total cost of borrowing, making even small loans expensive.

Maintaining a healthy credit score is therefore not just about approval—it is about affordability.

How to Check Your Credit Score for Free

Many people are unaware that they are entitled to check their credit report for free once every year. This allows you to understand where you stand before applying for any major loan.

To check your credit score, you typically need to visit the official website of a credit bureau and provide basic details such as your PAN number, date of birth, and registered mobile number. After completing verification, your credit report is usually generated instantly or within 24 hours.

Experts strongly recommend reviewing your credit report before applying for a loan, as it gives you time to correct errors and improve weak areas.

Timely Payments Matter the Most

Payment history is the single most important factor affecting your credit score. Missing even one EMI or credit card payment can negatively impact your score.

While paying only the minimum amount due on a credit card may help you avoid late fees, it does not stop interest from accumulating. Over time, this increases your outstanding balance and weakens your credit profile. Making full payments on time—every time—is the best way to steadily improve your score.

Setting reminders or enabling auto-debit for EMIs can help ensure you never miss a due date.

Control Credit Usage and Avoid Frequent Loan Applications

Another key factor influencing your credit score is credit utilisation—the percentage of your total credit limit that you use. Financial advisors suggest keeping credit usage below 30% of your available limit. High utilisation indicates overdependence on borrowed money, which can lower your score.

Additionally, avoid applying for multiple loans or credit cards within a short period. Every application triggers a “hard inquiry,” and too many such inquiries can temporarily reduce your score. It is better to apply selectively and only when genuinely needed.

Old Accounts and Secured Loans Can Help

Closing old credit cards or loan accounts in a hurry can sometimes hurt your credit score, especially if those accounts have a strong repayment history. Older accounts improve the average age of your credit profile, which works in your favor.

If your credit score is already low and you are unable to get an unsecured loan, opting for a secured loan can be a practical solution. Loans backed by fixed deposits or gold carry lower risk for lenders. Regular and timely repayment of such loans can gradually rebuild your credit score.

Common Mistakes You Should Avoid

Many borrowers unknowingly harm their credit score by ignoring small delays, overusing credit cards, or applying for too many financial products at once. Another common mistake is not checking the credit report for errors, which can unfairly drag down your score.

Avoiding these mistakes and following disciplined financial habits can make a noticeable difference over time.

Final Takeaway

A low credit score can make loans expensive and difficult to obtain, but the good news is that improvement is possible with consistent effort. Timely payments, controlled credit usage, and informed borrowing decisions are the foundation of a strong credit profile. By making smart choices today, you can ensure easier loan approvals and lower interest costs in the future.