A strong credit score endows prospective lenders with confidence about your repayment capacity or to avail of a credit card by proving your credibility. Your CIBIL score is a 3-digit numerical denotation that ranges anywhere from 300 to 900, which is calculated based on a detailed analysis of your repayment history, the overall number of credit accounts, account age and CUR (credit utilization ratio).
What are the advantages of a strong credit score?
Being a loan aspirant, it is wise to be totally aware of the benefits of holding a strong credit score. It is a key to unlocking a few great interest rates from lenders and opening a choice for the potential lenders as well as loan deals that you later can pick & choose from. With a higher credit score, you have a good chance of not only loan application approval but also bagging the best rate of interest.
∙ Improved approval chances: With a strong credit score, the chances of loan application approval are extremely high because it shows a good history of regular on-time payments as well as a sound credit record. Every lender runs a credit check before approving your credit card or loan application. It is a hard enquiry and can lead to considerable damage to your score if your application is turned down due to any dodgy credibility.
∙ Better rate of interest: A strong credit score can assist you in availing of a loan at competitive rates. The probability of loan default repayment usually has a bearing on the interest rate you will be charged. A strong credit score shows your credibility and indicates you have sound repayment behaviour. When your credit report shows that your default risk is minimal, you will be rewarded with a relatively low rate of interest on your loan.
∙ Bigger credit limits: Potential lenders most probably is going to be more willing to grant you a bigger loan amount or credit card limit if you have a strong credit score because this shows you to be a trustworthy and responsible borrower.
A strong credit score spells the fact that you are worthy and a responsible applicant who has not amassed a lot of debt that you cannot afford to repay. This determines that you have not applied for several credit lines from multiple lenders and that you will have zero difficulties in repaying your loan within time.
Also Read: loan without credit history
What are the threats to your score?
It is very crucial for you to understand the parameters that impact your score. Often the major reason for a bad credit score is because you are not aware of the effects of specific factors on your score. A low score will therefore come across as a surprise.
∙ Late payment: Late payment has a massive impact on your score. In fact, delayed payments can reflect in your credit report for up to 7 years. Late payment might show that you are not capable or good at handling or planning your finances. Perhaps, the problem is simple. Many often forget to repay their EMI by the due date. While this can hamper your score considerably, ensure to set up reminders with the assistance of tech. In case you are finding it tough to track multiple repayments, consider opting for the debt consolidation option, i.e., consolidating all the multiple loans into a single loan to meet the risk of missed repayments.
∙ High credit utilization ratio: Constant spending of over 30 percent of your credit limit can hamper your score. Again, this behaviour shows you as an irresponsible individual. To eliminate the risk, you are recommended to not use over 30 percent of your credit card limit and repay your credit card dues in full by the due date.
∙ Multiple credit lines: Applying for several loans from multiple bank lenders within a short time period indicates you as a credit hungry individual. A dubious record of availing multiple credit lines is a serious red flag for lenders casting doubt over your repayment potential that may taint your creditworthiness as a loan borrower.
How much is recommended enough?
No matter whether it is any lender, SBI, Axis or HDFC, the CIBIL score for them is an important parameter to check before approving any loan. Often a credit score of 750 and above is considered a good and can ameliorate your chances of availing of a loan at a lower rate of interest and speed up your approval procedure. With a lower rate of interest on the loan, you can end up saving a lot on your loan over the long term. Ensure to keep the credit score between 750 and 900 to avail loan approval and a lower rate on loan.
Here is a quick look at the importance of credit scores in a tabular form. Through this, you can easily know about your credibility and your probability of securing loan approval.
No matter whether it is any lender, SBI, Axis or HDFC, the CIBIL score for them is an important parameter to check before approving any loan. Often a credit score of 750 and above is considered a good and can ameliorate your chances of availing of a loan at a lower rate of interest and speed up your approval procedure. With a lower rate of interest on the loan, you can end up saving a lot on your loan over the long term. Ensure to keep the credit score between 750 and 900 to avail loan approval and a lower rate on loan.
Here is a quick look at the importance of credit scores in a tabular form. Through this, you can easily know about your credibility and your probability of securing loan approval.
Credit score Inference Credit approval chances 750 – 900 Excellent – Approval chances for loans and credit cards are extremely high. Very high 700 - 749 Good – You most likely may be looked upon as a decent loan candidate. Good 650 - 699 Average – Note that a lot can be done to enhance your credit score Possible with just a few lenders. In case you are unable to get the loan approval through banks. Ensure to approach NBFCs or HFCs as they have lenient eligibility criteria and do not focus much on your credit score. However, the offered interest rate by HFCs and NBFCs will be extremely high. 600 – 649 Not sufficient and immediate action must be taken to improve your score. Low Below 600 Your credit score requires great attention. Take instant action to ameliorate your score. Very low
There you have it – you must pay attention to your credit report if you want a good credit score. Ensure to check CIBIL score by PAN card by approaching any of the online lending marketplaces. You can also approach credit bureaus to avail your yearly free credit report. Post which you will have to pay to avail your credit report from the bureau. However, if you visit an online marketplace for your report, then you can avail of 1 free credit report every month.
