A credit score is an important parameter factored in for checking your loan eligibility criteria. Knowing your credit score can assist you in better understanding your financial stability and health. Whether you are placing an application for a personal loan or business loan or any other kind of loan, holding a good credit score is important. It can highly impact your chances of availing a loan application approval whether it is an application for a 3 lakh personal loan or 5 lakh personal loan. As a personal loan is unsecured in nature, you must factor in your credit score to understand your credit behaviour pattern and where you stand financially. Let’s go through and understand what a credit score is in detail –
What’s a credit score?
A credit score is nothing but a 3-digit number that endows you a glimpse into your behaviour with credit. The number is used for determining your creditworthiness as an applicant. In simpler words, a credit score is used by lenders to determine if you can repay your loan in full. If you miss out on your credit card bill dues and loan EMIs, it negatively affects your credit profile and score, ultimately lowering your chances of availing a loan in the future. However, note that you can ameliorate your credit score simply by making repayments on time. Doing so will assist you in planning out your monthly budget in an effective way. Additionally, to this, applying for various loans within a short time period even impacts your credit score. To opt for a personal loan at a lower rate of interest, it is recommended to apply for just one loan at a time.
Credit score range
A credit score ranges anywhere from 300 to 900, whereas a credit score equaling 750 and above is looked upon as healthy. In India, a credit score is computed by 4 credit bureaus – CIBIL, Equifax, CRIF High Mark and Experian.
|Between 750 and 900||Excellent|
|Between 700 and 749||Good|
|Between 650 and 699||Average|
|Between 550 and 649||Poor|
|550 and below||Bad|
Additional Info: you can also apply for a 3 lakh personal loan.
What are the top advantages of having a strong credit score and profile?
Having a good credit score can benefit you in the listed ways –
Ameliorates your loan eligibility
One of the major benefits of having a good credit score is that it ameliorates your eligibility for availing loan. Few of the lenders may provide you with a pre-approved credit option depending on your credit profile and score.
Reduced rate of interest – With a higher score, lenders may provide you with a lower rate of interest. Having a higher score shows you as a responsible individual among the lenders.
Higher repayment tenure – Additionally to availing a lower rate of interest, you can even avail a higher loan repayment tenure. This would assist you to spread the loan repayment as well as manage your EMI payments simply.
For many individuals availing a loan has become tough as this process is complex. Nowadays, to grant a loan application, lenders tend to review your CIBIL score. Lenders might turn down or accept your loan application or offer you a loan at a relatively higher rate of interest or even provide you with a loan at a relatively higher rate of interest or even provide you with a loan at an affordable rate of interest. However, this all boils down to having a good credit score.
CIBIL refers to a credit reference agency that ensures to keep a constant tab on credit history and all other crucial credit info or details for everyone who ever has borrowed money. NBFCs, banks, financial institutions or companies are among those who act as members to credit bureaus. Such financial institutions send your record towards credit periodically. Each one of your credit histories then is updated according to your financial behaviour.
A credit score is an important numerical representation of your borrowing habits. This includes the debt you have availed, the way in which the debts are repaid, the kind of credit accounts being maintained by you, the accounts’ age, and any delinquency. In other words, every financial detail gets recorded in your credit history.
Before offering a loan or any other credit option, lenders and financial institutions evaluate your credit report to make a sound decision. Your credit score assists lenders to understand the associated risk if any to determine the credit line you are eligible for.
Credit score and its impact on credit approval
When assessing your loan application, lenders usually want a credit score equaling 750, which suggests you are a low-risk consumer with a good history of loan repayment in full and on time. With a credit score equaling 750 and above, you have a good chance of getting accepted for a credit card or loan. On the contrary, banks are hesitant to extend your credit if you hold a poor credit score of 750 and above. In contrast to this, financial institutions are hesitant to extend the credit if you hold a low credit score and almost will certainly turn down your credit card or loan application.
Credit score impact on your personal loan approval procedure –
As a personal loan is a kind of unsecured kind of loan, it already comes with a high rate of interest. There are zero restrictions on loan usage. This means, you can simply use the loan to make payments for your kid’s education or you might spend the same on your dream vacation. As the loan is unsecured in nature, no such security is required to hedge the risk with assets. There is zero minimum credit score required to place an application for a personal loan. As the bank is just offering you the funds based on your high credit score, the higher your score, the greater your chances of getting your loan application approved. If you hold a low credit score, you will avail a personal loan at an exorbitant rate of interest.
Read more about Know This Before Applying For A Short-Term Personal Loan