Nowadays, getting a loan from a bank is not just limited to filling out a form. Banks first assess how financially responsible you are as a customer, and the primary measure of this is your CIBIL Score. Many people apply for loans without checking their score and later face rejection, which not only wastes time but can also negatively impact their score further.
Read More- Change Your Passport Address from Home, Learn the Complete Step-by-Step Process
What is a CIBIL Score and how is it determined?
A CIBIL Score is a number between 300 and 900 that reflects your credit profile. It shows whether you have paid your previous loans or credit card bills on time. Paying EMIs and bills on time strengthens your score, while delays, defaults, or repeated missed payments cause the score to drop rapidly. Banks consider this score your financial report card.
At what score do banks grant loans and when do they refuse?
In the banking system, a score of 650 is considered a crucial threshold. If the score is below 650, banks may consider you a risky customer. In such cases, the chances of getting a loan are very low, and even if you do get one, the interest rate may be quite high. With a score between 650 and 749, there is a possibility of getting a loan, but the terms and conditions may be strict. Customers with a score above 750 are considered the safest by banks and are offered loans with better interest rates.
Why can taking a loan from an NBFC be more expensive?
When banks refuse to give loans, many people turn to NBFCs (Non-Banking Financial Companies). While you might get a loan here, it comes with high interest rates, hefty processing fees, and stringent terms and conditions. In the long run, this debt can put a strain on your financial situation.
Why is a loan rejected even with a good score?
Sometimes, even with a CIBIL Score above 750, a loan is not approved. This could be due to low salary, existing high EMIs, a new job, or frequent job changes. In addition, the bank’s internal policies, age, location, and profession also influence the decision.
How to improve a bad CIBIL Score
If your score has dropped, there’s no need to panic. Paying all EMIs and credit card bills on time is the most effective way. Using your credit limit sparingly, keeping old accounts active, and avoiding frequent loan applications also help improve your score. With the right habits, you’ll see an improvement in your score within a few months.
What options are available for those without a credit history?
People who have never used a loan or credit card may have a score of N/A or -1. In such cases, banks are a little cautious. A secured credit card against a Fixed Deposit (FD) is a good option to build a credit score. Regular payments will help establish a credit history within 6 to 8 months.
Read More- Post Office Amazing Scheme, Guaranteed Monthly Income of Rs 20,000, See Details
Why does loan settlement negatively impact your future?
When a person is unable to repay the entire loan and the bank closes the account after offering a waiver, it is called a settlement. This results in a negative record in the credit report, which remains for several years. It can make it difficult to get a home or car loan in the future, so you should always try to repay your loans in full.