Lenders also have their own cut-off credit scores and depending on their own credit risk analysis for evaluating loans and interest rates, lenders choose borrowers.
A credit score shows an individual borrower’s credit history, wherein things such as the number of credit accounts the borrower has, total debt, repayment history, and enquires the borrower has made while seeking a loan are visible. A lender uses this credit score to evaluate the borrower repaying ability. The closer a borrower’s credit score is to 900, the higher are the chances for getting his loan application getting approved.
Usually, a credit score of 750 and above is considered to be good, and the chances of getting a loan or credit card increases, and the borrower also gets attractive interest rates. Having a low credit score can make it difficult for borrowers to get a loan from lenders. Lenders use credit score and credit report from Credit Information Bureaus to assess the creditworthiness of a borrower before approving a loan or a credit card. TransUnion CIBIL, CRIF High Mark, Experian, and Equifax are the four credit bureaus in India.
When applying for a loan, as soon as the lenders receive the application of the borrowers, they fetch the borrower’s credit score and credit report from credit bureaus to assess the creditworthiness. Lenders also have their own cut-off credit scores and depending on their own credit risk analysis for evaluating loans and interest rates, lenders choose borrowers.
If you want a loan from a particular borrower with not extremely high credit score, sometimes it might not be possible. For instance, not all lenders put the grading information in the public domain. While some lenders mention the credit score needed separately, others do not reveal the credit score required to obtain the loan.
Role of a high score
Even though your credit score can range anywhere between 300 and 900, it usually depends on your credit behavior. As closer your credit score if to 900, the higher your chances are of getting a credit card or easy approval of a loan application. Experts say, having a good credit score gives the borrower the leverage while applying for a loan, as the lenders are assured with a high credit score and want to lend to such borrowers.
Additionally, the amount the borrower wants, along with his/her income and credit score, is among the parameters set by most banks for determining the interest rate. Hence, having a good credit score can also get you a lower interest rate. This is true for lenders who follow the risk-based pricing while setting their interest rates for borrowers.
Low credit score?
For borrowers not only is it hard to find lenders with low credit score but the interest rates that are offered by the lenders are also very high. However, the low credit score category differs from lender to lender. While most banks turn down borrowers with a credit score below 750, terming them as less creditworthy and having more credit risk, NBFCs and other financial institutions approve loans for such individuals, but charge them higher interest rates.
Experts suggest, even if an individual is not borrowing at the moment, he/she should aim at improving his credit score. Individuals with higher credit scores also need to take measures to maintain them. Hence, try to check your credit report at regular intervals. This will help you detect any error, that can pull your credit score down.