Synopsis: The CIBIL score plays a crucial role in your loan application process. Continue reading to learn the importance of a CIBIL score and why lenders check it before approving any loan.
CIBIL score is one of the most important parameters in your loan application process. It serves as the lender’s first impression – the higher the score, the more likely it is that the loan will be considered and accepted. Additionally, having a high CIBIL score helps borrowers win quick loan approvals and affordable loan terms.
In this article, we discuss the importance of a CIBIL score and why lenders check your CIBIL score before approving your loans. Read along!
What is CIBIL Score?
The Credit Information Bureau (India) Limited (CIBIL) is the most well-known of the four credit information firms to which the Reserve Bank of India (RBI) has granted a license. The RBI has also licensed three more companies to operate as credit information companies – Experian, Equifax, and Highmark. The CIBIL score, however, is the most widely used credit score in India.
CIBIL Limited keeps credit records on 600 million people and 32 million enterprises. The company is owned by an American multinational corporation called TransUnion, because of which credit scores are known as the CIBIL Transunion score in India.
The CIBIL score, which varies from 300 to 900, is a three-digit numerical summary of your credit history, rating, and report. The closer your credit score is to 900, the better.
A credit history is a record of a borrower’s debt payments. A credit report is a summary of a borrower’s credit history obtained from a variety of institutions, including banks, credit card companies, collection agencies, and governmental bodies. The credit score of a borrower is the result of a statistical algorithm that uses credit information to forecast how creditworthy you are. It typically takes between 18 and 36 months of credit utilization, or longer, to achieve a good credit score with a CIBIL report.
5 reasons why lenders check your CIBIL score
For lenders, one of the most important factors is your CIBIL score because it shows how creditworthy you are. It enables lenders to comprehend your credit history, any missed payments, and other significant elements that have a direct bearing on the credit. As a borrower, you must maintain a high CIBIL score to receive the required loan amount at a lower interest rate.
Here are a few additional reasons why a CIBIL score is important and why lenders check CIBIL score before approving your loan:
1. Loan eligibility
Your credit score is important to lenders if you’re seeking unsecured loans because it serves as a testament to your creditworthiness. Lenders can view your credit history and examine your credit report. As a result, your credit score will let you know if you qualify for a loan or not.
To make sure you have a better credit score before asking for a loan, you can check your CIBIL score online. Once you satisfy the requirements, your loan application will be approved.
2. Rate of interest
Your CIBIL score is directly impacted by three of the most significant factors — interest rate, loan size, and duration. You and your lenders can learn more about the CIBIL score with the aid of your online CIBIL score check.
The CIBIL score serves as collateral for the loan amount when you apply for an unsecured loan. If your CIBIL score is great, you will stand a better chance of receiving a large loan amount with a lower rate of interest.
On the other hand, if your CIBIL score is low or unsatisfactory, there is a potential that your loan application will be denied or approved with a high-interest rate.
3. Debt obligation
If you are a guarantor and the borrower doesn’t pay back the loan on time, your CIBIL score will go down, and you’ll also be held responsible for paying back the loan. In such situations, lenders will look into any outstanding debt you may have because it will immediately affect your capacity to repay any future loans.
Therefore, before you agree to be anyone’s guarantor, you should know the borrower’s credit history and current financial situation.
4. Loan amount
Lenders also use the CIBIL score to determine the principal loan amount. With a higher credit score, borrowers will be able to borrow more money. This is because when lenders know for sure that the borrower can pay back the loan, they will be more willing to give out large loan amounts. As a result, borrowers must work hard to maintain a decent, healthy credit score.
5. Promotional offers
Higher CIBIL score borrowers are valued by lenders. A higher CIBIL score makes it easier for lenders and borrowers to accomplish their respective goals without any difficulty. From the perspective of the lender, they can give a larger loan, which contributes to boosting their earnings. They are also certain that payments will be made on schedule.
This motivates businesses to provide these consumers with a range of exceptional offers, including pre-approved loans, lifelong credit cards, alluring credit card offers, unique presents, and other alluring deals. Due to the multiple advantages they stand to gain, these particular offers encourage borrowers to maintain a good CIBIL score.
Apply for a loan with Protium
Whether you need credit or not, it’s crucial to practice sound money management. The majority of people have financial difficulties at various points in their lives, and choosing a loan or credit helps you deal with a variety of financial problems.
Furthermore, to avoid extra financial troubles, consider availing loans from private lenders such as ourselves – Protium – a finance company building powerful and transformative financing solutions. At Protium, we offer business loans with zero collateral requirements and affordable interest rates. To know more, give us a call at 8828827800.