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Will Credit Score Matter For All Loans?
June 1 2018

Will Credit Score Matter For All Loans?

A good credit score or CIBIL score is often the single most important factor that banks and non-banking financial companies (NBFC) take into consideration before sanctioning a loan. The credit score is essentially an aggregated numerical figure that predicts your ability to pay off a loan, calculated on the basis of your spending and repayment trends in the past.

Your credit score can fall anywhere in the range of 300 and 850. The higher your credit score, the greater the likelihood of the loan being sanctioned.

Recently, a few banks in India have started giving preferential pricing on loans to customers who have a good credit score. The question is whether or not this will become the norm for all kinds of retail loans across all banks.

This is why your credit score matters:

  • Risk-based lending is a global reality, and more and more banks are likely to adopt preferential pricing as the way to reinforce the importance of a good credit score.
  • Banks will enforce credit discipline among borrowers, and pursue customers that exhibit a good credit track record.
  • Customers with a good credit score are likely to get an instant discount on the loan, which will serve as instant gratification for the customer.
  • Credit discipline is likely to become the underlying basis for the sanctioning of all retail loans. This will reduce the delinquency rate and streamline the financial industry.
  • The emphasis on a good credit score can be seen in the case of both secured and unsecured loans.

The catch in the situation is that first-time loan applicants or those who do not hold a credit card yet may not have a high credit score. If you have never made a big purchase like a home or a car before, then also it is likely that your credit score is on the lower side. The upside is that it is easy to boost one’s credit score in a short span of time. The first and most important thing to do to improve a poor credit score is to pay your bills on time. Setting up reminders for credit card bill payments is a useful thing to do. If you have any debts to pay, make sure to pay them off as early as you can. Needless to say, your monthly installments should always be paid well in time.

If you are looking to apply for a home loan, you can consider the types of mortgage loans designed to cater to first-time homebuyers with low credit scores. Such home loans do not demand a high down payment and have flexible plans that can work for those who are just starting out.

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