How credit scores can make or break your chances of securing a loan

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In today's financial landscape, a loan is generally granted based on an applicant's credit score, a three-digit number that ranges from 300 to 900, with 900 being the best. It reflects how consistently an individual repays debt.

A higher credit score not only improves the chances of loan approval but also determines the interest rate and repayment terms offered by the lender. Lenders such as banks and NBFCs share repayment information with credit information companies, which calculate the score. This score significantly influences loan accessibility and affordability.

It is, therefore, important to understand what a credit score is, how it is decided, and what you can do to improve it.

A credit score is beneficial not only to people seeking loans but also serves as an important tool for lending companies. It is an effective tool to ensure a transparent and efficient lending process.

It has streamlined the entire loan approval process as it is a standardised transparent metric system for evaluating applicants. It helps banks and other financial organisations assess borrowers' creditworthiness, reduce default risks, and enable informed decisions on loan approvals, interest rates, and credit limits.

Lenders rely heavily on credit scores to determine the applicant's repayment capacity for loans. This also impacts the loan-to-value ratio and the overall cost of borrowing.

Additionally, credit scores promote financial discipline, encouraging responsible borrowing and timely repayment, thereby supporting long-term financial well-being.

The better your credit score, the higher the chances of getting your loan approved. Borrowers are also likely to get additional benefits such as low interest rates, better repayment terms and a