Before applying for a loan, what does your credit score tell lenders?

When you apply for a loan, one of the first things that your prospective lender would check is your credit score. Those who are not aware, it is a three-digit number which tells a substantial amount of information about the borrower and their payment history.

Although the entire credit information can be gauged only through a credit report, a credit score also gives a peek into the past credit behaviour of the borrower.

Constituents of credit score

1. Payment history: One of the most important factors that constitute a credit score is payment history. Having a good payment history is likely to lead to a high credit score.

2. Credit utilised: A high credit score also indicates low credit utilised (out of total credit available).

3. Credit history: A good credit score also means the borrower has a long credit history. Conversely, someone with a short credit history is likely to have a poor credit score.

4. Credit mix: Another small constituent is credit mix, which means a blend of revolving credit (credit cards) and emi loans, such as home and car loans. This has a small impact on the credit score and is not too significant.

5. New credit: Finally, a credit score is also made up of new credit, i.e., recently opened accounts.

High or low

High credit score: When the credit score is high, the borrower is likely to have a good payment history, low credit utilisation, and long credit history.

Poor credit score: On the contrary, when someone has a poor credit score, the borrower is expected to have an irregular payment history, high credit utilisation, and a short credit history.

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.

To check your credit score, visit here