Credit score explained: How this number can approve or reject your loan

Lending institutions check your credit score if you apply for a personal loan, credit card or any other form of debt. This is one of the first metrics they check. This is a three-digit number that reflects how responsibly you have dealt with credit in the past.

This metric helps lending institutions analyse your repayment reliability and clear your request for any credit lines, provided you meet the basic eligibility criteria. Prominent credit bureaus provide credit scores ranging from 300 to 900.

Any score of more than 750 is considered excellent. It signals stronger creditworthiness and repayment integrity, and it immensely improves your chances of faster approvals and better credit terms.

What exactly is a credit score?

A credit score is nothing but a reflection of your credit history in numbers. It can be referred to as your report card in finance. Credit bureaus generate it based on information contained in your credit report.

This report contains information on your loans, credit cards, home loans, and other forms of credit that you may have availed of in the past. It also contains information on your repayment history and other relevant information, including recent defaults and errors in your credit report.

Key factors that influence your credit score include:

1. Repayment history: Paying personal loan EMIs and credit card bills on time.
2. Credit utilisation: How much of your available credit do you utilise regularly?
3. Length of credit history: Older credit accounts improve credibility and build trust.
4. Credit mix: A balanced mix of secured and unsecured lines of credit is considered positive.
5. New credit inquiries: Frequent loan applications can trigger hard inquiries, which can lower your credit score.

What is considered a good credit score?

Lending institutions generally interpret credit scores as follows:

Note: The credit score range discussed above is illustrative in nature. For updated range, terms and conditions, refer to the official website of your respective lending institution and credit bureau.

How your credit score affects loan approval

Your credit score is fundamental to securing the credit product you want. This score has a direct impact on your eligibility, applicable interest rates and repayment terms on the credit product you wish to borrow.

A higher score may assist you in securing personal loans with lower interest rates, more flexibility with repayment terms and faster approvals. A lower credit score, however, can lead to stricter checks, higher borrowing costs or outright rejection.

To consistently monitor your financial well-being, you should regularly check your credit score. If you find any discrepancies, please notify your respective credit bureau. Finally, before you proceed with any form of debt, sit down with a certified financial advisor and seek guidance to ensure borrowing fits your long-term financial objectives.

To check your credit score, visit here.

Disclaimer: MintMoney has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. MintMoney does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.