The credit score is the most integral part of your financial journey. It determines your eligibility to enjoy some of the most lucrative credit products. This makes it extremely important to understand the relevance of your credit score when applying for a loan application. Read on to more about the credit score and its implications on your loan application.
Credit Score – What is it?
The credit score is a 3-digit numerical that is offered by a credit bureau such as CIBIL. It reflects your creditworthiness and is used as a threshold by lenders when approving a loan or any kind of credit. A high CIBIL score will bring you the most lucrative deals on your loan application. Typically, a CIBIL score above 700 is considered to be good. Thus, you must maintain and check CIBIL score regularly to enjoy a healthy financial journey.
The Loan Application Process
The CIBIL score check is a major part of the loan application process. Typically, it goes through the following process that includes:
Step 1 – Applying for a loan through your preferred bank or non-banking financial company.
Step 2 – Submitting all the essential documents as requested by the lender.
Step 3 – Lenders will closely evaluate your application, the submitted documents and the CIBIL score.
Step 4 – If the CIBIL score and the eligibility meet the requirement of the lender, the loan application will be approved.
Importance of the Credit Score
The credit score screens your stability as a borrower. Lenders are heavily influenced by the number when approving your loan. If your score is below 700, there is a high chance that your loan will not get approved despite meeting the eligibility criteria. This is why there is a growing awareness about the importance of credit scores among credit seekers.
Hurting your Credit Score?
Several times, you may be unaware of unintentional actions that lower your credit score. This is why you must take appropriate action to keep your CIBIL score in check. Some of these aspects to avoid include:
Making Late Payments – Missing even a single payment can lead your score to significantly drop. A late repayment is recorded in your credit report. Lenders review this history to regard you as an irresponsible borrower.
Making Multiple Credit Applications – While applying to several lenders for a single product may seem like a good way to get the best deal, it makes you appear like a desperate borrower. Your hunger for credit makes lenders feel that you may not be able to make repayments in time. It also brings down your score to a great extent.
High Credit Utilisation – As a customer, there is a credit limit set for you depending upon your income. This limit suggests how much credit you can avail and effectively repay. It is best for
you to utilize not more than 30% of this limit as exceeding it can lower your credit score.
Now that you know, the credit score is an essential determinant used by banks and non-banking financial companies when sanctioning loans. This is applicable to all kinds of loans including personal loans, home loans, business loans and more. Irrespective of the loan you seek, the credit score is a significant criterion. If your CIBIL score is not as good as it should be, you must improve your CIBIL score by maintaining financial hygiene like making immediate debt repayment. Also, regularly check your CIBIL score to know your score standing. Finserv MARKETS lets you access a free credit health check report that you can use to keep a close track of your credit health.