How credit card scores impact loan approval and interest rates

In our lives, credit scores play a vital role financially. It is the behaviour of lenders that determines whether an individual is capable enough to take out a loan. This is done through an analysis of credit card history. It is considered that a good credit card history is an essential eligibility criteria for obtaining a credit card. This aspect of credit score has broadened, and this is especially true for personal loans with high interest rates.

In this article, we will discuss how credit scores impact loan approval and interest rates. With a good credit card score and the few steps given below, you can improve your credit score.

What is a credit score?

The CIBIL score, or credit card score, is determined by any lender or any private organisation by verifying the person’s previous loans and credit history. It is a three-digit number that ranges from 300 to 900. The chances of getting an application approved increase when it reaches 900. A good score makes a borrower a reliable person for availing any loan.

If the score on the credit card is low, then the application from an individual can be rejected by the lender. If anyone doesn’t have any payment history and uses more than one card, then his purchase history and repayment can also be considered. Lenders find scores above 750 to be good credit to lend the loan.

How does a credit score work?

The credit score of an individual is considered creditworthiness, and these scores are a numerical representation. There are some factors that measure the credit scores of an individual, such as:

• Credit Usage
• Credit variation
• Credit history length
• History of Payments

Many lenders check the credit card histories of individuals, such as Experian, High Mark CRIF, Equifax, and CIBIL.

Factors Affecting the CIBIL Score

There are a number of CIBIL scores that can affect the score, and it is dynamic in nature. For instance, if your CIBIL score is lower or your payment is missed, then your credit automatically decreases. If you want to improve, make sure to pay your EMIs on time. If you don’t pay on time, then your credit gets lower and lower.

Additionally, you must pay your debt regularly and avoid making multiple applications.

Loan Tenure: A loan like home loans, also known as big-ticket loans, can be extended. With a low credit score for an individual approving the loan for a minimal tenure, it can increase the EMI amount.

Down Payment:- It is considered a commitment, and it is not from the lender side but from the borrower side. If you have a low credit score, the lender may reduce the ratio value of the loan.

Credit Score Understanding

Before taking any decision, lenders consider and follow some categories to lend to borrowers. These credit scores are based on the history of credit cards on different levels of credit, from poor credit to excellent credit. They follow a pattern like:

Poor credit scores: In this range, it is 500–600. In matters of poor credit score, one can face challenges.

Fair credit scores: In this range, it is 650–699. This is considered a fair credit score.

Good credit scores: In this range, it is 700–749. It is considered a good score and reliable.

Excellent credit scores: The score is above the range of 750. It has excellent credit scores.

The impact on loans of CIBIL

It is a leading bureau known as Credit Information Bureau India Limited [CIBIL]. To determine a borrower’s credit, the financial and bank institutions refer to the scores given by CIBIL. On deciding the loan rejection or acceptance, in assisting lenders, amount of loan, rate of interest the CIBIL plays a crucial role.

Relation between Rate of Interest and CIBIL

For personal loans regarding interest rates, it is the tendency of lenders to practise risk-based pricing. Before considering any loan, the CIBIL score is analyse against an interest rate. The reason behind this is based on the history of credit and habit of repayment. A CIBIL score is given. With this, the lenders determine the risk that may arise, and it indicates the financial responsibility of the lender.

How can you improve your credit score?

With easy steps, you can improve your credit score and get the best interest rate on your personal loans. There are some tips that one needs to follow:

Keep a balanced low credit card: If you handle your credit responsibly, then it will positively affect your credit score if you keep it less than 30%.

Repayment: If you want to maintain your credit score, you should pay your EMI, or utility bill, before the due date.

Keep track of your credit. If you track your credit, you can identify issues if any arise. This will ease your efforts, and accuracy must be corrected and reported.

Avoid applying for too many loans. Avoid taking too many loans; it will result in a bad credit score. This credit may have a bad impact on lenders.

Other factors that can affect your personal loan

The lender will consider your portfolio and financial health. Many institutions will list their requirements for finance, but not all institutes follow the same list. This list will consider every aspect that includes your debt-to-income [DTI] income ratio and income, even the employment factor.

Employment

To be eligible for a loan, you need not be an employee of any company. In this case, you just need to show that you have a source of income, or at the time of loan repayment, it can be kept as security. It depends on the lender’s demand for a particular job.

Current loan repayment

It is not a matter of fact, considering your repayment history, how much you generate income, but it depends on how attentive you are while paying for your debts. The ideal DTI ratio is below 36%. It totally depends on the lender. They may sometimes ignore the fact of repayment issues under certain circumstances.

Conclusion

Before considering any application of law, you must check your payment history and credit score, try to maintain them, and try to meet the minimal requirements kept forward by the lenders. To increase your chances of getting approval for a loan, you must maintain your credit along with your loan.

You can also research the lender’s requirements and try to stand out to get speedy approval of the loan.