There are a lot of inquiries into the credit score check by people going to apply for a loan. There are times when people are not aware of the role of credit score and its implications or the fact that due to bad financial management their loan application gets rejected.
Even if you are not looking to apply for a loan in near future, it always helps to be aware of banking terminologies to ease off the loan process whenever you go out to apply for auto loan.
A credit score reflects the financial acumen of an individual. How efficiently they spend, how smartly they manage their finances, or in totality how stable is an individual financially. These are some of the things that lenders i.e., banks evaluate through a credit score to determine your creditworthiness.
Do not know much about creditworthiness?
No worries! We are going to cover many aspects of credit score to help you understand how it reflects your finance management.
- What is a Credit/Cibil score?
- Know the Credit score range
- What attributes are reflected through credit score?
What is a Credit score?
The credit score is a 3-digit numerical value in the range of 300-900. It is determined by considering the financial history of an individual. Banks or NBFCs, whoever you approach for a loan, evaluate various information to assess the financial capabilities of an individual. These include:
- Payment history: Did you default on any past repayment plan and how efficiently you managed to pay back the loan
- The total amount owed: Have you cleared all your debt or still own money to the banks
- Length of credit history: Did you clear your debt in due time or had to extend the loan tenure further to clear the debt
- Types of credit: Credit cards, car loans, mortgage loans, etc., are checked to determine how financial stable a loanee is
- New credit: All the credit inquiries you have made before applying for the loan
These are the most important factors that determine your creditworthiness. Based on the assessment of this information, a cibil score is generated to determine the loan features a lender is ready to offer you.
Now, if you are looking to check your credit score you can do so without any difficulty by going online. For a free credit score check, simply log into your computers to know your credit score within a minute or two.
Know the Credit score range
Different credit scores are classified into different categories. Based on these categories, the lender moves ahead with the loan application to offer respective credit score class features.
Let’s understand the credit score range in detail:
- Unsatisfactory (300-399)
The loan application is rejected for applicants with a credit score between 300-399. However, over time you can improve your credit score by making smart financial decisions.
- Low (400-499)
Your loan application will not be approved, the loan terms & conditions and interest rates will be too high.
- Moderate (500-749)
Your loan application may get approved but may face certain issues and some of the leading banks and NBFCs will be willing to offer but with high interest rate.
- High (750-900)
A credit score between 750-900 means that you have been efficient with financial management and have been making smart financial decisions. You even get the leverage to negotiate for better loan features as you will have plenty of lenders ready to offer you a loan.
A credit score can be deemed as a personality check albeit a financial one. It is better to make an informed decision when it comes to spending your money especially when it involves making a payment with credit cards or repaying the previous loan amount.
What attributes are reflected through credit score?
Credit score is a documented financial capability of an individual. There is a reason why so much emphasis is placed upon making smart financial decisions. You cannot err with your credit card payment and expect that the banks will be offering you top loan features. Every tiny bit of bad financial planning affects your credit score which in turn affects your chances of getting your loan approved.
A credit or cibil score reflects the many attributes of an applicant which are mentioned below:
The first question that comes up when you file for a loan application is, “Are you worthy of a loan or not?” A stable job, clearing off your debts in time, getting a loan only in need, or are some of the things that determine your creditworthiness.
- Smart decision making
For a lender, it is all about getting their money back. They do their part of offering a loan based on credit score, but they cannot predict if you are going to pay off the loan amount in time or not. If you have a favorable credit score, it makes the right impression on the lender to trust in your decision making that you are going to clear off the debt.
- Repaying capabilities
How much do you earn, how much lump sum do you choose to pay upfront, and what kind of EMI breakdown you opt for, are some of the things that determine your repaying capabilities. The lender uses credit score to gauge the applicants repaying capabilities with a credit score only.
It would not be an exaggeration to say that you can turn around your life if you focus on boost a good credit score. As, that would mean clearing off your debt, resisting the temptation to overspend, and most important of all making smart financial decisions.
So, get going to check free credit score online to ensure that next time your loan application gets approved positively!