The Role of Credit Score in Obtaining Loans: A Comprehensive Guide

A

Credit score plays a crucial role in getting financial assistance. A good credit score also called a CIBIL score, can help individuals get loans at better interest rates and terms. However, individuals with lower credit scores have limited loan options and receive high-interest loans. Furthermore, they face more troubles while availing of loans due to the possibility of rejection. It is important to check free CIBIL score via the CIBIL score app to manage and improve creditworthiness. The article will help you to know the importance of credit score in obtaining a loan.

Understanding Credit Score

A credit score refers to a number that determines an individual’s creditworthiness. It is a three-digit number ranging from 300 to 850. Creditworthiness tells about the individual’s financial behaviour and sensibility toward managing their finances. It also provides information about how likely an individual can repay their payments on time. Here is the list of credit score ranges and their consideration in the financial market.

Credit Score Report
300-579 Poor
580-669 Fair or Satisfactory
670-739 Very Good
740-799 Good
800-850 Excellent

Credit scores can be evaluated based on five factors, i.e., credit history, credit owned by the individual, new credit, length of credit history, and the credit mix. The range between 600 to 850 promises a better loan approval rate and added perks. Therefore, it is important to maintain good credit scores to have multiple benefits in financial assistance from banks and other financial firms.

Role of Good Credit Score in Securing a Loan

When an individual applies for a loan, lenders always check the applicant’s credit score before availing of the loan. It assures lenders about a specific individual based on their repayment history within time. 

A good credit score is key in approving loans at lower interest rates. In addition, it also provides power to the applicant to negotiate the terms of the loan so they can get the advantage of repaying the loan amount for a longer period at a lower interest rate. It helps improve the borrower’s monthly budget, making them live peacefully. 

However, individuals must maintain their CIBIL score by timely paying bills, regularly checking credit reports, using credits, and avoiding accumulating debts.

Below are the benefits of good credit scores that can aid in sanctioning loans.

  1. Individuals with good credit scores have higher chances of loan approval.
  2. Lenders prioritise the borrower with good credit scores as they can be at lower risk of fraudulence. It eases the application process and approval time. 
  3. Borrowers with good credit scores are less risky candidates for availing loans. Therefore, they attract borrowers by offering loans at lower interest rates.
  4. Borrowers with good credit scores can apply for better loan terms, including lower fees, repayment periods, and larger loan amounts.
  5. Loan applicants with good credit scores can negotiate with lenders for favourable loan terms, interest rates, and repayment methods.

Influence of Low Credit Scores on Loan Applications

Individuals with low credit scores can face problems while applying for a loan. A bad credit score hinders obtaining better opportunities during loan sanctioning. Some of them are discussed below:

  1. Individuals with low credit scores face troubles in loan approval. It is advisable to check the free CIBIL score using the CIBIL score app to avoid rejection or loan approval delays.
  2. It limits the options for availing loans. 
  3. Lenders offer lower loan amounts to borrowers with low creditworthiness. Therefore, always maintain your credit score and check your free CIBIL score regularly through the CIBIL score app.
  4. Lenders charge higher interest rates to borrowers with low credit scores. 
  5. It restricts options for availing other benefits and opportunities from financial institutions.

Techniques to Improve Credit Scores

If an individual has a low credit score but wants to apply for a loan and avail of benefits, they must follow the steps to improve their credit score.

  1. Avoid missing deadlines for repayments of bills and set reminders for the same.
  2. Complete all the dues as soon as possible in case of pending payments. 
  3. Keep track of your credit score by checking your free CBIL score through the CIBIL score app.
  4. A long repayment period is advisable to consider for availing of a loan.
  5. Individuals must prefer one loan at a time. Never move for the second loan while being stuck in one loan. It may reject the loan application and degrade the credit score.
  6. Avoid overspending through credit cards, and always check your credit limit to avoid exceeding the same.

Conclusion

Credit scores play a critical role in the sanction of loans. The high credit scores ease obtaining the loan by providing the firm stand for negotiation. Furthermore, individuals can also attain more benefits over loans and credit cards

Likewise, individuals with low credit scores are advised to maintain their credit scores by paying bills on time and clearing debts before applying for a loan. Check the free CIBIL score using the CIBIL score app to follow the proper credit score improvement plan and to track the score consistently reflecting positive changes.


Leave a comment
Your email address will not be published. Required fields are marked *

Categories
Suggestion for you
H
Huzaifa Nawaz
Blue Diamonds: 7 Facts You All Should Know
April 13, 2024
Save
Blue Diamonds: 7 Facts You All Should Know
H
Huzaifa Nawaz
Pre-Requisites Before Applying for an Instant Personal Loan
February 6, 2024
Save
Pre-Requisites Before Applying for an Instant Personal Loan