The Impact of Credit Scores on Loan Approvals in India: Building a Solid Credit History
By admin_mutual | Jul 21, 2023
Your credit score is a three-digit number that lenders use to assess your creditworthiness. It is based on your credit history, which includes information about your past borrowing and repayment habits. A higher credit score indicates that you are a good borrower, while a lower credit score indicates that you are a riskier borrower.
In India, credit scores have a significant impact on the loan approval process. Lenders use credit scores to determine whether or not to approve a loan application, as well as the interest rate and loan terms that they are willing to offer.
How Does Credit Score Affect Loan Approval in India?
Here is how credit score affects loan approval in India:
Loan eligibility
Lenders have minimum credit score requirements for different types of loans. For example, a lender may require a credit score of 750 or higher to approve a home loan application. If your credit score is below the lender’s minimum requirement, your loan application may be rejected.
Interest rate
Lenders typically charge higher interest rates to borrowers with lower credit scores. This is because borrowers with lower credit scores are considered to be riskier, and lenders need to charge higher rates to cover their losses in the event that the borrower defaults on the loan.
Loan amount
Lenders may also limit the loan amount that they are willing to offer to borrowers with lower credit scores. This is because lenders want to make sure that borrowers can afford to repay the loan.
How to Build a Solid Credit History?
If you want to improve your chances of getting approved for a loan in India, it is important to build a solid credit history. Here are some tips on how to build a solid credit history:
Pay your bills on time
This is the most important thing you can do to improve your credit score. Lenders want to see that you have a history of making your payments on time.
Keep your credit utilization low
Your credit utilization ratio is the amount of credit you are using compared to the total amount of credit available to you. A high credit utilization ratio can hurt your credit score. Aim to keep your credit utilization below 30%.
Do not apply for too much credit too quickly
Every time you apply for a new loan or credit card, the lender will run a credit check on you. This will cause a small temporary dip in your credit score. If you apply for a lot of credit in a short period of time, it could significantly damage your credit score.
Check your credit report for errors
It is important to check your credit report regularly for errors. If you find any errors, you should dispute them with the credit bureaus immediately.
By following these tips, you can improve your credit score and increase your chances of getting approved for a loan in India.