Check out how your credit score affects loan eligibility

Nowadays, financial instruments play quite an essential role in our lives, isn’t that right? So, with regards to availing of such avenues, a very good credit score is basically like a golden price ticket because it unlocks the flight to suitable products and, most importantly, loans. 

Furthermore, in relation to availing loans, mortgage eligibility plays a crucial position. Therefore, today, in this article, we’ll apprehend how precisely your rating affects your mortgage eligibility in our country.

What is a credit score? How is it calculated in India?

This score is basically your financial report card! Yes, you heard it right. This three-digit variety represents your creditworthiness. In India, the most widely identified score company is the Credit Information Bureau (India) Limited (CIBIL). 

Your CIBIL score ranges from 300 to 900, with better scores indicating better creditworthiness glaringly. 

  • Payment history

Timely repayment of credit card bills and loans impacts scores in a positive way. 

  • Credit Utilization Ratio

This ratio measures how much of your credit you are actually using. A higher ratio negatively impacts the score. 

  • Credit history length

A longer credit history with timely repayments and consistent borrowing can boost your score. 

  • No. of credit inquiries

Many people don’t know that multiple inquiries in a short period can suggest a higher risk and may lower your score.

How does score affect loan eligibility?

  • Loan approval threshold

A credit score of 750 or above is generally considered a desirable spot for eligibility in India. This signifies a high likelihood of timely repayments, making you a desirable borrower. Therefore, with a score above 750, you’re more likely to get your loan application approved. 

  • Rate of Interest advantage

A good score means better interest rates. This is because lenders perceive the potential borrower as a lower risk, allowing them to offer loans at a lower cost. 

  • More Options

A high and good score opens doors to many loan options in the market. One may easily qualify for various loan types, including unsecured loans like a personal loan, with more favourable terms and conditions. 

Keep in mind that apart from the score, other factors also play an important role. These include consistent income and employment stability, the debt-to-income ratio, and the purpose of the loan. 

How to improve credit score

If you are under the umbrella of a bad credit score, no need to worry. Just follow these tips, and you will be more than good to go!

  • Maintain a schedule of timely repayments

Ensure that you pay your bills, EMIs, and other loan application dues on time consistently. 

  • Managing Utilization Ratio

The golden rule is to never max out your cards! Keep your ratio low (generally below 30%) for a positive impact. 

  • Build history

If you are new to all this with no credit history, consider applying for a secured loan to establish a positive record. 

  • Monitor credit report

Regularly check your report for any kind of errors. Some platforms offer a free credit report once a year, so don’t forget to take advantage of this facility.  

Summing up

If you don’t value your credit score, there is still time, as it is quite a powerful tool! By simply understanding its impact and taking the right steps to improve it, you can easily pave the way for a smoother application process. 

Always keep in mind that a healthy score is an investment in your secure financial future, opening doors to endless possibilities. 

 

Published
Categorized as Finance

By Arslan Shah

Arslan Shah: Passionate blogger, researcher, and administrator dedicated to delivering engaging content for readers

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