Your credit score is a three-digit number that indicates your ability to repay debt or outstanding credit to lenders. It is calculated by assessing your credit history and repayment behaviour. This includes your existing debts, credit history, the types of credit instruments you have experience with and more.
When you apply for any loan, lenders evaluate your credit score to check your creditworthiness. This helps lenders analyse the risk you pose as a borrower.
While there are many credit information companies in India, the most popular one is CIBIL. CIBIL assigns credit scores between 300 and 900. A high credit score of 750+ increases your chance of getting a loan approved easily and quickly. It also improves your chance of getting a competitive interest rate or better terms on your loan, such as a high loan amount.
A low score implies a history of missed payments or defaults or that you do not have much of a credit history. This lowers your chances of getting approval on your loan application or leads to stricter loan terms.
Given its importance in the approval process of a loan, be sure to check your credit score before you apply. This way, you can improve your credit score by paying off existing debts or reducing credit usage.