credit score definition

What is a Credit Score? How it Helps in Personal & Business Loan Approval

November 30, 2022 • 6661 views

A credit score is one of the most crucial factors in the eligibility criteria for a loan. Knowing what your credit score is will help you understand your financial health. Whether you are applying for a Personal Loan, Business Loan, or any other type of loan, having a healthy credit score is crucial. It can greatly influence your chances of getting the loan application approved. As Personal Loans and Business Loans are unsecured, lenders consider your credit score to determine your credit behavior.

Let’s understand credit scores in detail.

What is a Credit Score? 

A credit score is a three-digit number that gives a glimpse into your credit behaviour. The number is used to determine an applicant’s creditworthiness. In other words, your credit score is used by lenders to determine if you will be able to repay the loan. 

If you miss your EMI or credit card bill payments, it negatively impacts your credit score, ultimately reducing your chances of getting a loan in future. However, you can improve your credit score by making timely repayments. This will also help you in planning your monthly budget in a more effective manner.

In addition to this, applying for multiple loans within a quick time period also affects your credit score. To avail of online Personal Loans at attractive interest rates, it is advisable to apply for one loan at a time.

What is a Good Range of Credit Score?

A credit score in India ranges between 300 and 900, wherein a credit score of 750 or above is considered healthy. In India, the credit score is calculated by four credit bureaus -- TransUnion CIBIL, CRIF High Mark, Equifax, and Experian.

CIBIL Score

Creditworthiness

550 and below

Bad

Between 550 and 649

Poor

Between 650 and 699

Average

Between 700 and 749

Good

Between 750 and 900

Excellent

 

Also Read: How to Interpret CIBIL Credit Information Report

What are the Benefits of Having a Good Credit Score?

Having a healthy credit score can benefit borrowers in the following ways:

  • Improves your loan eligibility: One of the biggest advantages of having a healthy credit score is that it improves your eligibility for securing a loan. Some lenders might offer you a pre-approved loan based on your credit score.
  • Reduced interest rate: With a higher credit score, lenders might offer you a lower interest rate. Having a higher credit score establishes you as a responsible borrower among lenders.
  • Longer loan tenure: In addition to getting a lower interest rate, you can also get a longer loan tenure. This will help you stretch the loan repayment and manage your EMI payments easily.

In conclusion

As Personal Loans and Business Loans are unsecured, your credit score will play a crucial role in determining your eligibility and approval. Maintaining a good credit score will keep your credit history clean and increase your chances of availing of loans in future.

FAQs - CIBIL Score

  • How to know what my credit score is?

Your credit score plays an important role in helping lenders determine your creditworthiness, i.e., your ability to repay a loan. You can find out your credit score by connecting with your respective financial institution, lender, or credit card company. 

  • What is the best credit score range?

A credit score of anywhere between 750 and 900 is considered excellent by lenders. A high credit score ensures that you receive a loan at low-interest rates. There are several ways you can improve your credit score. Pay your debts on time, maintain a good credit mix, and regularly check your credit report to avoid any inconsistencies.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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