If you are applying for any personal or business loan, you should be aware of the reality that a lower CIBIL score can harm your loan eligibility. Hence, keeping a sound CIBIL score is surely important for a person to be eligible for different lending entities.
Credit Information Bureau of India (CIBIL) generally examines your loan eligibility by scrutinizing your credit information. This information could be your repayment history, details about your past loans, and your credit utilization. Though, they also consider lots of other factors to determine the final CIBIL score of the clients.
Normally, a score of 750 and above is the best score and, you will definitely be suitable to take credit as opposed to those who have a score of less than 750. Additionally, even if you get approval for a loan, you will get it at a higher interest rate.
Banks and financial institutions are stringent about the credit score and reject your loan application if you have a bad credit score.
CIBIL calculates your credit score by considering the following factors:
Your credit score can get estimated by various factors, including:
- Past payment history: This factor impacts 35% of your credit score. It examines whether you make your payments on time or not.
- Amount of loan owed: This factor affects 30% of your score and reflects how much credit you have. The higher the amount, the lower is your credit score.
- Period of your credit history: It takes 15% of the score; the reliable credit history would lead to a healthy credit score.
How does credit score affect your eligibility for Loans?
Your credit score influences your capability to take a Loan in two dimensions.
- Your overall qualification: Your credit profile plays a primary role in determining whether or not you are eligible for a loan in the first place. Borrowers with a good credit score will always be the first choice for banks. Apart from this, borrowers with a low credit score might not meet the eligibility criteria set by the lenders. An average credit score may qualify for small Loans but at huge interest rates.
- The interest rate: credit score also defines the interest rate at which the lender lends the money. Bankers generally offer loans at very fewer interest rates to those who have a flawless credit history.
How can you recover your credit score?
Here are some steps that you can follow to improve your credit score.
- Always pay your EMIs and monthly dues on time
- Limits the usage of many Credit Cards at the time.
- Never apply for so many loans in a short period of time.
- Always try to make pre-payments when feasible.
- Always review your credit profile and report once a year.
Therefore, a credit score is an essential acceptability check that the lenders conduct before they approve your loan. So, it is advisable to review your score from any of the four credit bureaus and rectify any inaccurate data in your credit report before asking for the credit.
Non-banking financial institutions are more adaptable and flexible these days and may provide ample loan amounts, yet with a lower credit score. Though, these financial institutions may charge a high-interest rate.
