December 28, 2016 No Comment. Posted in Financial Literacy

It is difficult to get a loan with a low credit score . Most banks look for a minimum score of 750 when deciding whether to approve of a loan application. Similarly, if you apply for a credit card with a 650 score, you have a much smaller chance of being approved. Even if you are approved with this score, you might be offered unattractive terms Rate of Interest in Loan.

Your credit score is a three digit number between 300-900. It is ideal to have a score of 750 or above to qualify for loans. If your score is less than 750, it is advisable to increase your score before applying for a loan.

Evaluation Process

Taking a loan can be a complicated process for most people. The illustration below indicates what to expect at every step during the loan evaluation process. It helps understand how the credit decisioning works in banks and the steps they take before deciding to accept or reject a loan.

First- Applicants fill a loan application form.

Second- Hand it over the Bank.

Third- Bank check with CIBIL for Credit Score and Credit Report (Low Credit Score Leads to loan rejection)

Forth- High Credit Score leads to eligibility check basic documents.

Non Eligibility leads to rejection of loan application.

Eligibility will lead to loan approval.

700  is generally considered a good Credit Score

79% of the loans or credit card disbursed are to individuals with a Credit Score greater than 750.

WHAT DO THE BANKS BROADLY CHECK FOR?

  • Suit filed or written off cases reported in the Credit Information Report [CIR]. This is indicated in the ‘Account Status’ section of your CIR
  • Payment history trend – if there has been any default or amount overdue. This is indicated in the ‘Days Past Due’ [DPD] field of your CIR
  • Company profile where you work – the banks generally have an approved list to which they extend loan / credit card.
  • EMI to Income ratio : if your current total EMI exceeds your monthly salary by more than 50% then chances of getting loan are reduced. Let’s take the help of an example to understand this further.

 

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