While a high score increases your chances of getting a loan and that with attractive interest rates, lower points can make lenders worry about lending to you. Therefore, your credit score is a number that can cost you or save you a lot of money while you are getting a loan.
Let's look at what it means to have a high and low score.
As soon as a person applies for a loan, the concerned financial institution will pull the applicant's credit score and credit information report from credit bureaus to assess the suitability of his or her credit. There are four credit bureaus in India - TransUnion CIBIL, Experian, CRIF High Mark, and Equifax.
Depending on the credit risk metrics they use, financial institutions set cutoff credit scores for evaluating the applicant and set risk based interest rates for the loans.
The credit risk metrics is actually a risk-taking approach. Some lenders disclose the risk metrics in the public domain (with credit score cut off stated separately). However, some lenders may not disclose the credit score required to get a loan.
Credit scores can vary anywhere between 300 and 900 depending on a person's credit behavior. The closer to 900 points, the higher the chances of a credit card or loan approval.
If you have a good credit score and healthy tradelines, it gives you leverage while applying for a loan as it provides a level of comfort to the lender of your good repayment behaviour.
A credit score of 750 and above, improves the chances of a loan or credit card approval. Many lenders also follow risky prices when setting interest rates for loan applicants. Those with high credit scores are charged lower interest rates than those with relatively low scores. Therefore, people should always aim to gradually improve their credit score and those with good credit scores should take adequate steps to maintain it.
Borrowers with lower credit scores are charged higher interest rates than those with higher credit scores. Alternatively, a borrower with a very low credit score may not get a loan from most lenders. Financial Institutions tend to view people with low credit scores, often less than 750, as not fit for and at high risk of debt. Therefore, those people are less likely to obtain a credit card or credit card. While other lenders may agree to lend to those people, they may charge higher interest rates. to deal with high credit risk.
Some of the credit practices that help build and maintain good credit score include timely repayment (EMI) payments on time, credit card payments on due date, avoiding many loan and credit card inquiries in the short span, and monitoring co-applied/ guaranteed money.
You should also check your credit report from time to time for any incorrect information or errors of the registrar that may reduce the credit score. These discrepancies, if any, should be reported to the relevant bureaus. In addition to free credit reports from bureaus, consumers can also download free Credit Health Report on Finserv MARKETS.
If you have a low credit score, there are still ways you can get credit. People with low credit ratings should increase their search for loan options to find lenders who are willing to lend to those with low credit scores. They can also add co-applicants / guarantors with higher credit rates and a better credit profile to increase their chances of getting a loan. Alternatively, look at secured loan options such as gold loans and loan against securities as lenders offer less value to credit scores due to the availability of adequate collaterals in the event of a non-repayment of loan.
Ever considered quantifying your financial health in specific parameters, with the Credit Health Report on Finserv MARKETS?