When you apply for a loan, the lender evaluates your creditworthiness to calculate the risk of giving you the funds. Credit decisioning is the process by which lenders assess your creditworthiness. Understanding credit decisioning is critical since it influences your ability to receive credit, which is required for achieving a variety of life goals.
What is the meaning of credit decisioning?
Credit decisioning is the process of determining your creditworthiness using a variety of criteria such as your credit history, income, debt-to-income ratio, and payment history. The goal is to assess the level of risk associated with giving you funds. It also involves identifying ways to approve your credit application with reasonable expectations that you would repay the loan as per the agreed credit terms. The lender bases this choice on your previous credit history.
Demystifying the credit decisioning process
Credit decisioning is evaluating several factors to determine your creditworthiness. The procedure consists of three stages: data collection and verification, assessment, and approval or rejection.
When you apply for credit, lenders review and verify the information that you give, such as your income, employment history, and credit history. Then, they assess your creditworthiness using a variety of methods. The final phase is deciding whether to approve or deny the credit application. If authorised, the lender will provide the credit limit, interest rate, and other terms and conditions.
Credit bureaus collect and store information on your creditworthiness from a variety of sources, including banks, credit card companies, and other financial institutions. India has four major credit bureaus: CIBIL, Equifax, Experian, and CRIF High Mark. Lenders seek the support of credit bureaus during the credit decisioning process.
Impact of credit decisions when you apply for credit
Credit decisions significantly affect your capacity to receive credit. For example, a good credit score boosts your chances of approval and provides you with better loan terms, such as low interest rates and higher credit limits. In contrast, a low credit score may cause your credit application to be rejected or give you with unfavourable credit terms such as high interest rates and low credit limits.
Credit bureaus offer a variety of services to help lenders evaluate your creditworthiness. Credit scoring is the process of establishing a numerical representation of your creditworthiness using information from your credit report. Credit reports include a full credit history, including information on credit accounts, payment history, defaults, bankruptcies, and inquiries. Fraud detection assists in identifying anomalies in credit information and monitoring credit activity.
Credit decisioning or credit decision-making is important because it influences your creditworthiness when seeking credit cards or loans. Maintaining a good credit score requires timely debt payments, avoiding defaults and bankruptcies, and checking your credit record. Credit bureaus are an important element of this process since they gather and store credit information and generate credit reports and scores.
To improve your creditworthiness, you need to manage your credit health actively. Consider subscribing to Credit Pass, powered by CIBIL, to get access to your credit health insights. It provides a personalised credit health dashboard, monthly CIBIL Score checks, and more.
