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Lenders on Credit Score: Planning to borrow money? This is how banks interpret your CIBIL score
Lenders on Credit Score: Rate of interest and terms of loans are based on the borrower’s credit score. Higher the score, lower is the rate of interest offered
Lenders on Credit Score: Banks tend to consider your credit score as a yardstick of your creditworthiness or the likelihood that you will repay borrowed money on time.
Credit scores are usually generated based on information in your credit report, which includes credit account details, payment history, current debts, and the overall financial behaviour.
This is how lenders interpret credit scores:
Excellent score: High CIBIL scores in the range of 800 and above suggest that there is no risk to lenders. So, the borrowers with excellent credit scores are expected to qualify for the best interest rates and terms on loans and credit cards.
Good Credit: The range between 670 to 799 shows a relatively low risk to lenders. Borrowers with good credit scores typically qualify for favourable terms, although not always the best available.
Fair Credit: Scores in the range of 580 to 669 suggest a moderate risk to lenders. Borrowers who have fair credit scores may still qualify for loans and credit cards, but they may face higher interest rates and less favourable terms.
Poor Credit: Scores less than 580 indicate a high risk to lenders. So, borrowers with poor credit scores may have difficulty qualifying for loans and credit cards, and if they do, they will likely face high interest rates and less favourable terms.
Lenders use credit scores along with other factors, such as income and employment history before they decide whether to give credit and if yes, then at what terms.
While credit scores are important, they are not the sole consideration, and different lenders may have their own criteria and thresholds of risk.
It's important to regularly monitor your credit score and report to ensure accuracy and to take steps to improve it if necessary, such as paying bills on time, keeping credit card balances low, and avoiding opening too many new accounts at once.
Frequently Asked Questions:
Does a high CIBIL score affect borrower’s loan eligibility?
A high score, to a great extent, affects the borrower’s loan eligibility. A good CIBIL score improves the chances of loan approval. So, lenders are more inclined to approve loans for individuals with higher scores as they are considered less likely to default on payments.
Does a high Cibil score lead to faster processing of loan?
Yes, it does lead to faster processing. A good credit score of borrowers enables banks to expedite the loan approval process.
How does the Cibil score affect the interest rate on loan?
Lenders generally offer better terms such as lower interest rates and fees, to the borrowers who have high credit score.
Why are banks lenient towards borrowers who have a high credit score?
Banks are generally lenient because they are believed to be less risky and the chances of default are almost zero.
What is the purpose of checking the credit score?
It is considered vital to check the credit score which can help you monitor your financial health.
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