Among the many factors that lenders examine before approving a loan, your credit rating or credit score is one of the most important. What credit rating implies is your creditworthiness, or your ability to handle credit. It is assigned to you by a credit bureau and is especially important for unsecured offerings such as a personal loan, as you’re not required to pledge collateral. In such a scenario, your credit rating becomes the prime metric that the lender relies on to gauge the risk involved in offering you credit.
As an individual, your credit score is between 300 and 900, and the higher your score is, the most trustworthy you are in the eyes of a lender. In India, your CIBIL score is generally taken into account by most lenders. However, there are other agencies, too, with scoring protocols that vary marginally.
Now that you have a basic understanding of a credit rating in India take a look at some of the details that affect you as a borrower.
Credit rating process
The credit rating process involves a detailed analysis of the credit risk associated with you. This is determined by evaluating factors such as your previous debt payments, credit exposure, and your credit utilisation ratio. It is generally carried out by an independent credit bureau and can be accessed in the form of a report that contains your credit history, as well as your score. This credit score can range anywhere between 300 and 900; knowing what your score indicates is important. Here is the breakdown of the score brackets.
This score is assigned to your profile when you have never borrowed credit and remains until you do.
This score indicates that you have a poor credit history. This could mean that you have minimal experience with handling credit or have defaulted on payments.
This is an average credit score and suggests that you need to work upon certain aspects that bring down your score.
This score is assigned to your profile when you have a healthy credit history. With this score, you have a fairly good chance of getting approval for credit. However, as there’s room for improvement, you may not enjoy other perks, such as being able to negotiate a lower interest rate.
This is the highest or good cibil score and is assigned to your profile when your credit history is excellent. It indicates that you have ample experience with credit and have a sound repayment record. With a score in this range, you are likely to get approval for a loan and get a favourable loan amount and interest rate, as the risk associated with lending to you is negligible.
For instance, you can qualify for loans such as the Bajaj Finserv Personal Loan with a CIBIL score of 750 or higher. It gives you access to a sanction of up to Rs. 25 lakh without collateral, repayable over a flexible tenor spanning up to 60 months, with instant approval and value-added benefits like the Flexi Personal Loan.
Additional Read: Personal loan with low CIBIL score
Types of credit rating
There are many types of credit ratings, as these are assigned to bank loans, corporate debt instruments, mutual funds, and the insurance sector, amongst others.
When it comes to individual credit ratings, the following agencies typically assign a score.
- TransUnion CIBIL Limited
- Equifax Credit Information Services Private Limited
- Experian Credit Information Company of India
- CRIF High Mark
While your CIBIL credit rating or score is the one that financial institutions across India widely use, some lenders may request a score from other agencies. Don’t be alarmed by this, as there won’t be a significant difference in the scores given by different credit agencies despite minor differences in scoring protocols.
Objectives of credit rating
Credit rating is important for a lender because it helps determine whether it's a fiscally sound decision to lend money to you. It simplifies this decision by condensing the relevant information into a single score. As a borrower, having a high score gives access to a higher loan amount and more flexibility in negotiating loan terms. Moreover, having a high score means that you don’t have to settle and choose from several beneficial options.
Additional Read: Improve your credit rating
For instance, when you have a score of 750 or more, you can qualify for the Bajaj Finserv Personal Loan with ease and make use of the Flexi loan facility. With this facility, you can borrow from the total loan amount that you’ve been given in parts when you need funds. The advantage here is that you pay interest only on the amount that you use. Moreover, you have the option of servicing the loan through EMIs comprising interest only for the duration of the tenor and paying the principal at the end of the term.
Once you’re sure that your credit score being apt, you can also expedite your loan application. You can check your pre-approved offer for a customised loan deal and get a personal loan in no time at all.
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