The 6 main reasons why lenders check your CIBIL score

New Delhi | Jagran Brand Office: Before applying for a loan, it is imperative that you meet the eligibility criteria set by the lender. Here, the CIBIL score is usually one of the most important criteria that lenders evaluate when deciding whether to approve or reject your application. Your score is based on your credit history and helps lenders determine your creditworthiness. TransUnion CIBIL Limited is an organization that records and tracks your credit history. This agency assigns a three-digit CIBIL score to your profile, ranging between 300 and 900.

For unsecured loans, having a healthy credit rating is essential, as you don’t need to give collateral and lenders have nothing to fall back on to recoup losses. From a lender’s perspective, the CIBIL score serves as an unbiased and accurate snapshot of a potential borrower’s credit profile. This makes it a critical factor in the underwriting and valuation processes. For a clearer idea of ​​why lenders check your CIBIL score before approving a loan, read on.

To make sure you meet their loan eligibility criteria

When you qualify for a loan, you must meet the qualifying criteria set by the lender. Regarding the CIBIL score, most lenders will require applicants to maintain a minimum score, which is usually 750. This helps to screen applicants and highlight those who are easily eligible for the loan and those who will require additional supporting documentation and evidence to obtain approval.

Note that some lenders offer special instruments like personal loan for low CIBIL score candidates. These will have different criteria and serve as a funding solution for those who may not have a high enough score. This can happen due to a lack of credit experience or if they have encountered issues that have caused their score to drop.

To assess your credit history and experience

Your CIBIL score is based on your credit history and having an adequate score suggests that you have managed your credit responsibly in the past. Although the length of credit history weighs only 15% on your CIBIL score, it is important. Naturally, in addition to checking your score, lenders will review your credit report to check your repayment history.

Moreover, a balanced credit mix without any defaults is also a good sign for lenders. This suggests that you can manage credit well while maintaining healthy finances. The credit breakdown has a 10% weighting on your CIBIL score, so lenders evaluate both of these factors to better understand your credit profile.

To check the number of new requests

New credit applications cause a temporary reduction in your CIBIL score, and a significant drop over a short period of time can be seen as a sign of a credit-hungry person. These applicants are considered a risk and lenders are less likely to approve. If the loans are approved, the applicable terms will not be the most favorable. Credit-hungry people are a red flag for lenders, so you shouldn’t repeatedly apply for new credit.

To check your existing debts and if you are a guarantor

Although a guarantor is not primarily responsible for repaying the loan, your CIBIL score is negatively affected if the primary borrower misses payments. Moreover, in such cases, repayment becomes your responsibility, which adds to your debt to income ratio. So lenders check your current debts and assess whether or not you can comfortably handle the extra payments.

Decide on loan details

Lenders take your CIBIL score into account when deciding what interest rate and penalty you can qualify for. If you apply with a CIBIL score of 750 or higher, you are more likely to get a favorable interest rate, and you may even have the option of borrowing the maximum penalty offered. The best lenders offer a hefty penalty of up to Rs. 25 lakh but take advantage of this amount; you will need an excellent credit profile.

To extend specialty offers, if applicable

Lenders offer specialized offers, such as pre-approved personal loan offers for existing customers, and these are largely dependent on your CIBIL score. With a high CIBIL score, not only do you qualify for these offers, but you can also access other benefits. This comes in handy when you need instant financing, as lenders consider you a low-risk borrower. Lenders like Bajaj Finserv offer customers who have a healthy credit profile personal loans of up to Rs. 25,000,000. competitive interest. To take advantage of these benefits and more, check your pre-approved offer in just 3 seconds and enjoy instant financing.

(Note: the article is written by the Brand Desk.)

Posted by:
Aalok Sensharma

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