The 3-digit credit score number shows how likely a borrower is to be accepted for credit. Before a lender agrees to lend money, they will evaluate the borrower’s ability to replay the same.
Lenders usually look at credit scores which, in turn, is provided by credit bureaus. The credit score ranges from 300 to 900, where 700-900 is usually considered a good score. Note that, the higher the credit score, the greater the chances are of the lenders approving disbursement.
Neeraj Dhawan, Managing Director, Experian India, explains, “Consumers that have high credit scores, the chances of going delinquent are low and hence the risk for a lender to lose money is lower; lower risk is then expected to translate into lower rates of interest.”
He further adds, “Overtime disciplined and timely repayment of these loans will build Credit vintage and score and allow them to borrow for larger needs and higher loan amount. Having a credit score will also allow them to access the larger Banks and financial institutions for their borrowing needs.”
As a borrower, your credit score is calculated after taking into consideration factors such as payment history, credit utilization, credit age, credit type, total credit accounts, etc. Therefore it is advised to check the credit score before applying for a loan.
Top five reasons to have a good Credit score that ease in getting a home loan:
According to experts, a credit score above 750 may lead you to a favourable scheme. This will help you apply for a loan through the best banks. The lenders will evaluate creditworthiness; a poor credit/repayment history will drop the score and the borrower won’t be eligible for good home loan schemes.
- Makes you eligible for Loans: A credit score of 750 or above is usually considered a good score. Dhawan says, “Lenders tend to offer special pricing to consumers with a high credit score. This not only makes one eligible to receive a loan but also get discounts on interest rates, and processing fees amongst other offers.”
- Cheap interest rate: A good credit score can help in getting loans at cheaper interest rates. As the risk for a lender to lose money is lower, it is usually translated into lower rates of interest.
- Loans with longer tenure: Note that, the better your score, the more chances of getting a higher loan with longer tenure.
- Quick approval of application: An application received by a lender with a high credit score, is easier for the lender to process the form quickly because the credibility of repayment is already verified.
- Discount on loan processing fees and other charges: Once the lender is interested in providing a loan on the basis of a good credit score, Dhawan says, “the borrower gets goods negotiation power and can ask for a discount for loan processing fees and other charges.”