Is your Credit Score good enough to get a loan at competitive rates? Find out.
There’s nothing like a good Credit Score to talk you up to a potential lender. A good Credit Score gives a prospective lender confidence in your ability to repay a loan or hold a Credit Card responsibly by proving your creditworthiness.
Your Credit Score is a three-digit numerical denotation, ranging anywhere between 300 and 900, which is computed based on a detailed analysis of your credit repayment history, total number of credit accounts held, the age of those accounts as well as your credit utilisation ratio.
Additional Reading: Low Credit Score? Here’s How It Can Affect You
Benefits of a Good Credit Score
As a loan aspirant, it would be wise to be aware of the benefits of having a good Credit Score. It is the key to unlocking some great rates from lenders as well as opening up a choice of potential lenders and loan deals that you could then pick and choose from. With a higher Credit Score, you stand a good chance of not just getting your loan application approved quickly, but also bagging the best interest rates.
- Improved Chances of Approval: With a good Credit Score, the probability of your loan application being approved is very high as it shows that you have a good track record of regular on-time payments and a sound credit history. Every lender will run a credit check on you before approving your loan or Credit Card application. This is a hard enquiry and will cause substantial damage to your Credit Score if your loan application is rejected based on dodgy credit worthiness.
- Better Interest Rates: A good Credit Score can help you get a loan at the most competitive interest rates out there. The probability of default on loan repayment has a bearing on the rate of interest you will be charged. A good Credit Score shows you to be a creditworthy individual with a sound history of timely and regular repayments. When your credit report indicates that the risk of a default is minimal, you’ll be rewarded with relatively low interest rates on your loan. Win!
- Bigger Credit Limits: A potential lender is most likely going to be far more willing to grant you a larger loan amount or a higher credit limit on your Credit Card if you have a good Credit Score because it shows you to be a responsible borrower.
A good Credit Score spells out the fact that you’re a worthy and responsible borrower who has not amassed far more debt than they can afford to repay. It determines that you haven’t applied for multiple lines of credit from multiple lenders (meaning you aren’t “credit hungry”) and that you will have no difficulty in paying back your loan on time. You get the picture.
Threats to your Credit Score
It’s important to understand the factors that affect your Credit Score. Often, the reason for a poor Credit Score is because an individual was unaware of the effects of certain factors on their Credit Score. A poor score would, therefore, come as something of a surprise.
- Late Payments: Late payments have a heavy impact on your Credit Score. In fact, late payments will reflect for up to seven years in your credit report. A late payment may indicate that you’re not very good or capable of planning and handling your finances. Perhaps, the issue was as simple as you forgot an EMI date – it happens in the busy humdrum of our lives. However, this can hurt your Credit Score considerably. Set up timely reminders with the help of tech (psst…the BankBazaar Mobile App) or if you’re finding it difficult to keep track of multiple repayment dates, consider a debt consolidation loan or a single line of credit to mitigate the risk of missed payments.
- High Credit Utilisation Ratio: Consistently spending more than 50% of your Credit Card’s limit will damage your Credit Score. Again, this behaviour portrays you as someone irresponsible with financial planning. To alleviate this risk, we recommend that you use no more than 30% of your credit limit and pay your Credit Card bills in full and on time.
- Multiple Lines of Credit: Applying for multiple loans from multiple lenders in a short span of time shows you to be credit hungry. A dubious record of seeking multiple lines of credit is a serious red flag for a potential lender, casting doubt over your ability to repay debt and tainting your credibility as a borrower.
Additional Reading: Getting A 750+ Credit Score Is Easy! Follow These Steps
How Much is Good Enough?
Generally speaking, a Credit Score of over 750 would be considered a good score and would improve your chances of getting a loan at a good interest rate and also expediting the approval process. With better interest rates, you will end up saving money on your loan in the long term. Keep that score between 750 and 900 and you’re golden.
Here’s a quick look at what your Credit Score would broadly spell about your creditworthiness to a potential lender and the probability of loan approval.
Loan Approval Chances
|Less than 600
|Your score needs attention. Take immediate action to remedy your score.
|Not good enough and urgent steps need to be taken to improve.
|Average although more could be done to boost your score.
|Possible with some lenders
|Good so you’ll likely be viewed as a decent candidate for a loan.
|Excellent – the world is your oyster when it comes to loan/Credit Card offers.
There you have it – it pays to pay attention to your Credit Score. You can easily leverage a good Credit Score to negotiate better rates on loans with lenders and you’ll likely have several potential lenders lining up offers for you so you can select the one that suits you best.
Is your Credit Score good enough for loan or Credit Card approval on your terms? Find out in less than two minutes by clicking the button below.