Anyone seeking to apply for a loan knows that they have to fill the required forms and also submit the required documents to the lender to initiate the loan application process. Loans are sanctioned only if the applicant meets the eligibility conditions as laid down by the lender. However before the documents are scrutinized a crucial hurdle needs to be crossed for the application to go to the next stage. The credit report of all applicants is scrutinized and if that is as per what is acceptable to the lender then only the application goes to the next stage.
As we said above credit report scrutiny is the first step in the loan approval process, this explains the importance of credit score in the application scrutiny process. Any lender will like to make sure that the money that they extend as loan is returned on time and in a disciplined manner, for this they try and ascertain the creditworthiness of the applicant which is done by looking at his/her credit report.
Generally a score above 700 is considered to be an acceptable score if someone is seeking to get a loan approved. Apart from that the lenders also look at the credit report to get a detailed insight into the credit behavior, history and overall credit position of the applicant. The credit report consists of various aspects related to the loans and also credit cards that a person has. Five parameters which are namely repayment history, credit utilization, loan tenure, credit mix and credit enquiries are used to calculate the credit rating which reflects if the person has been a responsible borrower in the past and also what is the overall current debt position.
This information gives the lender comprehensive information about the applicant and his credit history which helps them in deciding whether the application must be accepted or not.
A low score could indicate many things but broadly it indicates that the applicant is a high risk candidate which makes him/her likely to default more than a person with a good score. As we said above that lenders would like ensure that the money that they lend is returned to them so if someone is a high risk candidate then they would like to avoid lending to such a person. Getting a loan for low CIBIL score is difficult if not impossible to say the least. A low score could indicate one or more of the following about the applicant:
Being credit healthy is important not only from the aspect of taking loans but also because it is an indicator of overall financial health of a person.