It’s possible that a poor Credit Score will result in you being denied a loan. Credit Scores typically ranges between 300-900 with a good score being anywhere above 650.
Typically, when you apply for a loan your bank request credit bureaus like CIBIL (Credit Information Bureau India Limited) or Equifax, to generate your Credit Score and Report.
- The report shows a record of payments made towards your past loans and credit cards.
- The Credit Score is an indicative number that is based on the levels of default or prospective risk of the borrower while also taking into consideration regular payments of EMIs and bills
So why ask for a credit score or report and what can that help us achieve?
Resolve any issues by contacting the bank or the credit bureau. If the error is not being rectified, at least the bank and the bureau will have intimation about it and not consider this error during your loan application process. There will be enough time to resolve the report issues and also collect enough supporting evidence for the same.
Be Credit Card wise
While the report indicates past defaults, proper credit card usage and prompt EMI payments help boost a poor credit score. Avoid making late payments; avoid stretching the card usage too close to the credit limit.
Debt to Income Ratio
It is the amount of debt that the borrower owes compared to the overall income that he/she earns.
Banks look at DTI ratio when they try to decide whether to lend money or not. It is calculated by dividing the total monthly debt payments (including credit card payments if any). A low DTI indicates that the borrower maintains a good balance between debt and income. Take measures to ensure a low DTI.
When an individual has never borrowed a loan in the past, there will be no updates about it on the report. So the bureau marks it as ‘No History’. Banks tend to reject a loan application for lack of details in case there is no previous history.