Your credit score is an important factor to consider when applying for a loan. It can decide if you get a loan or not. A good credit score enables you to enjoy benefits such as cheaper interest rates, better offers for loans, and reduced insurance rates. In this article we will explore how credit scores affect one’s eligibility for loans and tips on improving credit scores.
What is a Credit Score?
Just like school grades, a credit score is a measurement of how dependable a person is financially. The Central Information Bureau Of India Limited (CIBIL) is the principal entity in India that keeps track of personal credit scores. This score ranges from 300 to 900.
Above 850: Easy loan approvals beyond this score. Excellent score.
750-850:Loans will be granted by most banks for this score range. Good score.
700-750:Moderate score. Some banks may approve, but will do further scrutiny.
650-700:Risky score. Expect higher interest rates.
Below 650: A score so low, that getting a loan becomes near impossible. Very poor score.
The Relationship Between Credit Score and Acceptance Of Loans
A person’s credit score would largely determine the probability of receiving a loan. For example, individuals with scores above 850 face no problems obtaining any loans at very low interest rates. On the contrary, those with scores below 650 have a very difficult time trying to fetch a loan. Such scores are deemed too risky, charging higher rates in an attempt to compensate for it.
Advantages Of Having A High Credit Score
Secured Loans: Loans that have to do with housing, vehicles or gold are easier to come by possessing these loans.
Unsecured Loans: Your credit score can get you low interest bank loans for, among other things, business purposes.
Bargaining Over Interest Rates: Loans can be given with less interest when one has good score.
Less Premiums: Loan linked insurances might also be offered with lower premiums because of outstanding credit score.
More Credit: Higher credit card limits can also be possessed, as a result of high credit score.
How To View Your CIBIL Score
Your CIBIL score can be viewed at the CIBIL TransUnion website. With a PAN number and a small fee you can get your report and score.
All Your Questions Regarding Your Credit Score Answered
There are different factors that affect your credit score. Let’s dive into them:
Payment History: Always repay your bills on time. It increases your score. Missing payments will lessen it.
Sudden Drastic Increase in Credit Card Debt: This increase of credit card debt always drops your score.
Debt-To-Income Ratio: If your earnings are more than your expenses, it increases your credit score.
Credit Card Usage: Always utilize your card by paying it off in full. Paying it off partially or late negatively impacts your score.
Filing for Bankruptcy: This is the most damaging. Always avoid filing for bankruptcy as it’s harmful for your score.
How To Maintain Credit Score
To maintain your score, remember these simple rules:
Do:
Frequently check your credit report.
Be aware of payment deadlines and set up automatic payments if possible.
Have some secured loans alongside some unsecured loans.
Do not overspend while earning less.
Do Not:
Forget to make payments or pay late.
Do not use over 80 percent of your credit limit.
Refrain from applying for many different loans at the same time.
CIBIL Score – Businesses
Just like private individuals or self-employed persons, companies also have a credit score. Generally, it is given by certain organizations like CRISIL, hcare, ICRA, SMERA, etc. A company’s credit rating is given on the basis of different measures of income, loan reputation, and overall acumen. A high rating enables companies to get loans with better terms.
Summary
Having a good credit score is very helpful when wanting to access loans at reasonable rates. To maintain a good credit score one has to pay bills on time, steer clear of debt, and keep an eye on their credit. Remember that everything mentioned above impacts the outcome of your finances. Always keep in mind that a good CIBIL score sets you up for better financial prospects.
