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How CIBIL Score affect

How does your CIBIL score affect your loan eligibility?

How CIBIL Score affect?

Let’s understand the current scenario before diving into how your CIBIL scores affect your loan eligibility.

In today’s fast-paced world, people are struggling with unpredictable situations such as financial disputes, public emergencies, uncertainties in the financial sector, securities exchange crashes, pandemics, and unfortunate employment situations. Thus, in a situation like this, you can be financially bound despite your best efforts. In any case, when all is well in the world around us, businesses are vibrant. for example, a sudden rise in demand, and a rise in the working capital prices unexpectedly.

There can also be a situation wherein, despite the lack of urgency, you fall short of funds for planned expenditure. In these situations, the best recourse would be to avail of debt fund exposures such as an unsecured business loan, term loan against property, enhancing CC (Cash Credit) / OD (Overdraft Facility), and more. But regardless of the type of loan, approval depends primarily on your CIBIL score. So, let’s understand how your CIBIL score affects your loan eligibility.

A CIBIL score is the first impression of the borrower for the lending institution. Simply put, the score demonstrates your financial soundness and can assist you in quickly getting the loan of your preference. Alternatively, if your credit score is not in the ideal range, you are more likely to be denied a loan or get a higher interest rate. Therefore, before you apply for a loan, it is essential that you check your CIBIL score.

Read here the Factors affecting the CIBIL score.

Why do financial institutions check CIBIL scores?

Financial institutions will check your Credit score for the following reasons:

1. To Understand Your Credit Reimbursements Pattern:

Using the CIBIL score, a lending institution can know your previous patterns regarding credit reimbursements. If you have repeatedly defaulted on your EMI obligations in the past, it does not reflect well on your creditworthiness.

2. To Know Your Reimbursement Capacity:

Any lending institution must differentiate between high-risk and low-risk borrowers. A good CIBIL score indicates a low-risk borrower who has the capacity and financial discipline to reimburse the credit.

3. To Calculate the Interest Rate and Loan Amount:

Once the lending institution realizes your CIBIL score, it will then use it to calculate the interest rate and determine the actual amount of loan to be disbursed. Individuals with good credit scores can expect reasonable rates of interest along with disbursal of the required loan amount. 

4. Working Capital Arrangement:

How well do you arrange your working capital out of the available credit facility? and justify all the stakeholders.

Know the advantages of a Good Credit Score.

Does a low CIBIL score mean the end for the borrower?

If your credit score is low, you may find it difficult to get an unsecured business loan from the banks. But a low credit score isn’t the end of the world. A decent credit score is essential for credit endorsement. However, if the score check reveals low numbers, it does not mean that you have lost all chances of getting credit at affordable rates. You can take some necessary steps to increase your score over the long haul.

How can you grow a credit score? Read here.

Coming to Conclusion:

Hopefully, you have understood how your CIBIL score affects your loan eligibility. Thus, a good CIBIL score underscores your financial commitment to pay your arrears. However, a score lower than the optimal does not spell out the whole disaster. Thus, a person who manages his finances well always has a higher CIBIL score. On the other hand, a borrower with a low score has less ability to repay the loan.

Learn CIBIL in detail.

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