What Does a Credit Score Mean for Your Loan Application?
As a part of capital creation process, banks accept deposits and lend money. Loans provided by banks are useful for solving many short-term and long-term financial problems in life. Before you apply for any kind of loan, it is essential to understand the application process to successfully get your loan approved. Furthermore, having a good credit score is paramount for effortlessly getting your loan approved by banks. The 3-step process for a loan application is as follows:
Loan Application Process
Step 1: Apply for a Loan with any bank/non-banking financial company (NBFC)
Step 2: Lenders will screen your credit score and other details in your loan application for checking eligibility
Step 3: Approval of Loan Application
Why Are Credit Scores Important?
Credit score is derived from credit rating agencies that monitor your financial history and calculate your ‘bankability’. As the credit score denotes your financial stability and health, it is an essential determinant when it comes to the approval of a loan. While a credit rating is provided by many agencies, most lenders consider the credit scores provided by CIBIL during the loan application process.
Eligibility Criteria Regarding Credit Score
CIBIL scores are 3-digit scores derived from your combined account balance and history of prior and ongoing dues. Furthermore, it also screens the regularity of your credit card bill payments. A credit score provided by CIBIL ranges between 300 to 900, out of which 750 is considered as an eligible score for providing a loan or for issuing a credit card. While different lenders have different criteria for accepting credit scores, if your credit score falls below 700, most lenders will not consider providing you a loan.
Due to its relevance, banks use credit score as an important determinant while sanctioning loans. The loan options provided by banks include personal loans, home loans, car loans, business loans or any other type of loans. However, for availing any of the above loan options, having an eligible credit score is a significant criterion. It is also important to know that if your credit score is low, you can improve it by regular repayment of your ongoing loans and credit card debts.