Wed, 18 May 2022 04:23 PM IST
New Delhi | Jagran Brand Desk: Before you apply for a loan, it is imperative that you meet the eligibility criteria set by the lender. Here, the CIBIL score is usually one of the more important criteria lenders assess when deciding to approve or reject your application. This is because your score is based on your credit history, and it helps lenders determine your creditworthiness. TransUnion CIBIL Limited is an organisation that records and tracks your credit history. This agency assigns a three-digit CIBIL score to your profile, ranging between 300 and 900.
For unsecured loans, having a healthy credit score is crucial as you do not need to pledge collateral, and lenders have nothing to fall back on to recover losses. From a lender’s POV, the CIBIL score serves as an unbiased and accurate snapshot of a prospective borrower’s credit profile. This makes it a critical factor in the underwriting and assessment processes. For a clearer idea of why lenders check your CIBIL score before approving a loan, read on.
To ensure that you meet their loan eligibility requirements
When availing of a loan, you must meet the qualification benchmarks set by the lender. With regard to the CIBIL score, most lenders will require applicants to maintain a minimum score, which is usually 750. This helps screen applicants and highlight those that easily qualify for the loan and those that will require additional supporting documents and proof to get approval.
Do note that some lenders offer special instruments like personal loan for low CIBIL score applicants. These will have different criteria and serve as a financing solution for those who may not have a high enough score. This can occur due to a lack of experience with credit or if they have faced issues that caused their score to dip.
To assess your history and experience with credit
Your CIBIL score is based on your credit history and having an adequate score suggests that you have responsibly managed credit in the past. While the length of credit history has only 15% weightage on your CIBIL score, it is important. Naturally, besides checking your score, lenders will look into your credit report to check your repayment track record.
Further, a balanced credit mix without any defaults is also a good sign for lenders. It suggests that you can handle credit well while also maintaining healthy finances. Credit mix has a 10% weightage on your CIBIL score, and so lenders assess these two factors to get a better understanding of your credit profile.
To check the number of new inquiries
New credit inquiries cause your CIBIL score to reduce temporarily, and a significant drop in a short period can be taken as a sign of a credit-hungry individual. Such applicants are seen as a risk, and lenders are less likely to grant approval. If loans do get approved, the terms applicable will not be the most favourable. Credit-hungry individuals are a red flag for lenders, so you should not repeatedly apply for new credit.
To check your existing debt obligations and if you are a guarantor
Though a guarantor is not primarily responsible for loan repayment, your CIBIL score gets affected negatively if the primary borrower misses payments. Additionally, in such instances, repayment becomes your responsibility, and this adds to your debt-to-income ratio. So, lenders check your current debt obligations and assess whether or not you can handle additional payments comfortably.
To decide on the particulars of the loan
Lenders consider your CIBIL score when deciding the interest rate and sanction you can qualify for. If you apply with a CIBIL score of 750 or higher, you are more likely to get a favourable interest rate, and you may even have the option to borrow the maximum sanction on offer. Top lenders offer a large sanction of up to Rs. 25 lakh but avail of this amount; you will need an excellent credit profile.
To extend specialised offers, if applicable
Lenders do offer specialised offers, such as pre-approved personal loan offers for existing customers, and these are largely dependent on your CIBIL score. With a high CIBIL Score, you not only qualify for these offers, but you may get access to other benefits too. This comes in handy when you need instant funding as lenders view you as a low-risk borrower. Lenders like Bajaj Finserv offer customers who have a healthy credit profile personal loans of up to Rs. 25 lakh. You also get a flexible repayment tenor between 12 to 60 months and a competitive interest rate. To get these benefits and more, check your pre-approved offer in just 3 seconds and enjoy instant financing.
(Note: The article is written by the Brand Desk.)