What Factors do Lenders Consider When Approving Loans?

Banks and NBFCs offer all kinds of loans to their customers- personal loans, home loans, business loans, etc. However, irrespective of the nature of a loan or its size, there is always some level of risk when it’s approved by a loan officer. This is why the banks consider several factors when someone applies for a loan. These are:

1. Credit Score

In case you don’t know, getting a loan for low Cibil score can be a herculean task. This is because credit score is the most important thing that a bank checks when it evaluates a loan application.

Your credit score signifies your creditworthiness. So, the higher is the score, the more you are “worthy” of receiving credit. This is because the score itself is calculated on factors like your repayment history, existing debt, credit utilization ratio, etc. If you have paid other loans in the past on time and without defaulting with any, then your score will be high, and it will let the bank know that you can be trusted with a new loan.

If you don’t know what your existing credit score is, then you can download your credit report online which can tell you the score and other important details as well which include your repayment history about loan EMIs and credit card bills, number of loan inquiries made recently, etc. You may also qualify for a free Cibil report if you didn’t download the report this year earlier. This is because as the per the norms of the central bank, all credit rating agencies are required to provide one free report to each user every year.

2. Income

You can’t take a massive loan with EMI of Rs. 30,000, when you are earning 40,000 a month. In other words, your income should be high enough to accommodate the EMIs of the loan you are interested in and also have room for your household expenses. There should be enough margin between the EMI and income so that the bank can have the assurance that you can easily pay the EMIs even if there is a financial emergency and you need to spend a portion of your income for that.

3. Debt-to-Income Ratio

If you are already repaying a loan, then the same is also taken into consideration during the analysis of your loan application through debt-to-income ratio which is self-explanatory. Again, this has to do with basic logic. If you are already paying the EMis of two loans and your income is just high enough to accommodate them and your expenses, then there won’t be room for another EMI. So, a bank won’t approve a loan knowing that you are earning barely enough to get by. You can find all the details regaring this in your free Cibil report.

4. Repayment History

When a bank approves a loan, they want the borrower to pay it back on time. This is because it’s not just about one borrower- there are hundreds of them in their portfolio. This is why if there are a large number of borrowers that delay payments, then it can affect the cash flow of the entire institution. So, the banks check the credit report of applicants to ensure that they have paid most of the EMIs, if not all, on time without delays. This is the reason why it’s so difficult to get a loan for low CIbil score and you have to take personal finance seriously to be financially secure.

5. Assets

If you own assets like stocks, real estate, jewelry, then you can get a loan by offering them as collateral. When you get a loan under this arrangement, then it’s called a secured loan for obvious reasons. In fact, a secured loan is easy to get compared to traditional loans as the bank can sell off the assets in case the borrower is unable to repay the loan. So, it’s easier for them to approve the loans. That said, these loans are risky for the borrowers because if you are unable to pay the loans, then you can lose your prized possessions.

So, these were some of the factors that lenders consider when they check loan applications. Do note that your credit rating is the most important factor here. So, make sure that you increase it as much as possible before you send the application.

How to Protect Credit Card from Online Fraud

Credit cards are used by a large number of people today. This is because they allow them to make cashless payments, improve CIBIL score, and purchase expensive items under an EMI arrangement. However, you have to be careful if you are a user as credit card frauds are also quite common today.

When you are shopping or paying for bills with credit cards online, then you become vulnerable to certain risks. The following are some of the ways you can avert them and continue using the cards without a worry:

1. Shop Only from Reputed Websites

There is nothing wrong with shopping online. However, you should not be lured towards unrecognized platforms that offer huge discounts and instead stick to just popular ones like Amazon and Flipkart. This is because reputed ecommerce stores take the online privacy and security of their customers seriously. The small online stores, on the other hand, may not go that extra mile to safeguard your financial information.

2. Use Technology

Before mobile banking was a thing, i.e. a decade ago or so, managing bank accounts was quite tedious. You had to pay a visit to your bank branch to deposit or withdraw money, open a new account, invest in a particular scheme, etc. Today, you can use technology to perform a variety of personal banking tasks effortlessly. For instance, you can monitor your credit card transactions via your bank’s official app that can also update you when new transactions are made or when abnormal purchase activities are identified in your accounts.

You can use a mobile app or your online banking account to enable security features that can alert you about unrecognized transactions and prevent frauds.

3. Check Credit Report

Finance experts highly recommend that you check your credit report every once in a while so that you can keep tabs on your financial activities. For instance, you can check the details of the payments of credit card bills, loans, etc. that were made in the past. You can also identify discrepancies and mistakes in the report so that you can have them removed and improve CIBIL score.

Checking your credit report can help in prevent credit card frauds. This is because if there are transactions made with your cards but without your approval, then you can find them in the report. In the same way, you can learn if there is a new credit card under your name, which is often the case with identity thefts. At any rate, this information can help you prevent credit card frauds to a huge extent.

Note: As per new rules, all the credit rating agencies including CIBIL have to provide their users a free CIBIL score and report at least once every year. So, in case you haven’t got yours this year, then you can apply today for free!

4. Avoid Sharing Credit Card Information Online

All the top online stores and merchants allow you to store your credit card details on their websites so that you don’t have to enter them every time you need to buy or pay for something. This is to make your experience more comfortable, and the websites promise the highest level of security. However, if you don’t want to take any chances, then it’s best to avoid storing the details in the first place. This is because you never know if a major cyber attack may take place that compromises all the records. The only way to protect your information is to keep it to yourself and share only at the time of payment, even if it’s a little inconvenient.

5. Avoid Sharing Credit Card Details on Public Computers

When you are traveling and use a computer in a cyber café or a library, then avoid accessing websites where you need to share your credit card details. You should also keep the same in mind when you connect to the Internet with a public Wi-Fi connection. This is because these connections can be tapped into by hackers.

Credit cards have their uses but they can also be misused by fraud entities. So, if you want to prevent financial frauds online, then be sure to follow the tips above.

What is the procedure to increase your credit score from low to high?

Your credit score is an important factor when it comes to your financial life. This is because lenders use this information when you apply for fresh credit, to determine whether to approve your loan or credit card application. Typically, a higher score will yield you the best deals especially in terms of interest rates – which makes it reason enough to ensure that your credit score is consistently high.

If you’re looking to improve CIBIL score and don’t know whom to ask, you’re in the right place! Read on to know more.

What is the credit score?

A three-digit number that represents your credit report, the score is generated by a credit bureau. There are currently four such bureaus in India, of which CIBIL is one. These scores range between 300 and 900, and a score above 750 is considered to be good.

What influences the credit score?

There are several factors that a credit bureau considers when generating your credit score. Let’s take a look at them:

Tips to increase your credit score

Now that we’ve established the importance a credit score holds when it comes to your financial health, let’s discuss the ways by which you can improve your score.

  • Call for your credit report. To begin with, get your free credit score from any of the bureaus. This is a great starting point for you to know where you stand. It’s simple: once you know exactly how good or bad is your credit score, you’ll also be able to understand what it will take to build the score. Further, check the report carefully to ensure that the information therein pertains to you. Any errors need to be highlighted to the concerned bureau immediately, as these can impact your score negatively. It is also a safeguard against identity theft.

  • Make timely payments. If you have an existing credit card or loan, you’ll know what we’re talking about. Given that your payment history is such an important aspect, it is only prudent to make timely payments. Making complete payments is ideal, so that you don’t fall into the debt trap of rolling over payments month on month. If you’re not able to keep track of EMI or card payment due dates, consider setting up an ECS facility from your bank. Sit back and relax while your payments go through seamlessly!

  • Use an existing account well. Do you have a credit card that you possibly no longer use, but have maintained well? By this we mean timely and complete payments. If the answer is yes, we’d advise you to hold on to this account, because it can have a positive impact on your score and in fact help boost the numbers. This is because to a lender, a card that is paid off in a timely manner indicates that the cardholder is likely to be creditworthy. Make an old account count!

  • Don’t apply for cards if you don’t need them. Here’s another golden rule! Every time you apply for fresh credit, be it a card or loan, a hard enquiry is made against your credit report. This brings down your score for a while, which can be fairly damaging. You can also head straight for debt, by getting tempted to overspend since there is credit at hand. It’s best then, to apply for credit only when you absolutely need it.

  • Have a healthy credit mix. A lender looks more favourably at a person who is able to handle all types of debt well, be it a credit card, personal loan or car loan – essentially a mix of both secured and unsecured loan products.

  • Manage your credit utilisation ratio well. Experts recommend that you do not use more than 30 percent of the credit limit across all cards. When you come close to maxing out your cards, a lender tends to view you more unfavourably as a person who is heavily dependent on debt to make ends meet. Keep on mind that your score will suffer if you don’t keep a close eye on those card balances! This is also a good way to ensure that you do not overspend.

  • Determine what you need to fix. Once you have your free credit score in hand, you are on the right track. Draw up details of your income versus expenditure so that you know just how much you can repay on an EMI. Similarly, understand how much you have to pay by way of credit card payments. Inculcating financial discipline will help you greatly.

The bottom line

It is never too early nor too late to improve CIBIL score. All it takes is time and effort, and the discipline to monitor your expenditure. Taking care of your credit score can be your gateway to good financial health, so start now!

Which is the fast way to increase cibil score

We are in an ear where everything that we want is instant. Instant is good. But it creates a lot of anxiety, impulse, and impatience. Everything instant is not good. Despite getting the results too soon, it’s always not necessarily perfect. There are many instances where the perfection or accuracy is not maintained at the speed of achieving it. While speaking over credit score and it’s rate of increasing or decreasing often has many myths. Let’s get those busted. There is no magic that can happen and would get your score to optimum great over a day or month. Also, the speed of increase also depends on the score which is currently. If the score is 450 and if the score is 650, definitely the time required to get 750 which is considered optimum best, differs. The one which has 650 will take lesser time compared to the one which has 450.

A CIBIL Score is a three digit number which is determined by payment history, the amount owed, new credits, credit mix and length of credits. Where, 35% is comprised of payment history which means how one has been making payments over the tenure of credit accounts opened. Credit consists of the credit card usage and the loans taken. 30% is for the amount owed. The total amount that has been taken, I.e. the credit limit one has for the credit card and the loan amount taken also has a major role in making the credit score. Length of credit history is 15%. How long have been the credit accounts are open, is the factor that is also considered. Rest both, new credits, credit mix are given 10% each. New credits are the one which is applied. But, if there are multiple attempts for opening new credit accounts can drag the score down. As it makes the creditors think that one is in dire need of funds which is also called credit hungry behavior. Credit mix is the combination of a secured and unsecured type of credit along with the fixed and revolving type of credits. These are the parameters and the weightage of them.

Now, on individual history, these scores are made. Any mistakes in these parameters will mess up with the score. The details information is mentioned in the CIBIL report. How long have been the account open, how and when are the payments made, any defaults, missed or delayed payments are all mentioned in the report. Also, the inquiries made for applying the credit are also mentioned. The first score is established after 6 months of an active account. Then the score is updated almost every month. Credit utilization is also a factor which affects the score. This is specifically for credit cards. One should not use more than 35% – 40% of the total credit limit of the card one has. To increase the score, the first and the foremost thing which has to be done is rectifying the old mistakes. There may be any missed payments, default accounts, unpaid dues, etc. work on them. Talk to the banker, tell the issues you had. Try clearing all those first. Then, use your credit card upto 35% of its limit. If your usage is more, apply for a new card. And use the mix. As you apply for a new card, new credit factor is also considered. But yes, do not overdo! Try taking a secured loan, say a gold loan or secured credit card. This will be a good of credit mix as well.

Once this is achieved, make sure you do not miss any more payments or delay in payments. Organize the payments. Keep reminders. Do not miss the repayment dates. While you follow this practice for over few months, a good credit score is no far! Again, there can’t be any finite time that is calculated to get a 750 score, but it is always achievable if the above mentioned points are taken care of!

Procedure that individuals who maintain a credit score of 750+ follow

There is no doubt that a high or good credit score can make a significant impact to your financial life. It can offer you the best interest rates on loans and get your credit card application approved. In some countries globally, even prospective employers and insurers go through a person’s credit report to determine their creditworthiness. You never know when bagging your dream job is the result of a good credit score!

So, does it mean that there will never be a loan for low CIBIL score? Well, not exactly, but such a loan does not come at the best terms. For instance, you can wind up paying a much higher rate of interest than you would if your score had been higher.

What is a credit score?

We know what a credit score does and how important it is, but let’s take a quick look at what constitutes the credit score, shall we? It is a numerical representation of your credit report, an all-important document generated by a credit bureau. There are currently four credit bureaus in India, each offering a report. A score ranges between 300 and 900, and a higher score is always a plus point.

Lenders consider a score of 750 and above a near-perfect score. This score essentially gives them the comfort of lending to a creditworthy individual and that’s what makes the score so important. How about calling for your free CIBIL report to know where you stand currently?

Factors that determine the credit score

Let’s take a diagrammatic look at the factors which determine the CIBIL score:

Keeping these factors in mind, your next step is to understand how to get a good credit score – and keep it that way.

How to get a good credit score

So, what is it that people who consistently have a high or good score of above 750 do regularly? Is it something drastically different? Here, we clue you in on their habits so that you too can work towards building and maintaining a similar credit score. Read on!

  • Payment history: It is crucial to make timely payments, so once your loan EMI or card statement is due, pay off the amount on or before the due date without fail. Remember that a delayed payment – or one that is skipped entirely – can pull down your score drastically. If you look at it from a lender’s perspective, they would not want to extend further credit to someone who doesn’t manage their existing debt well. So, set up payment reminders or avail of an ECS facility to maintain a clean repayment track record.

  • Manage your credit utilisation: While the credit utilisation limit is calculated across all your accounts and not just on a single credit card, remember that it is prudent to stay well within a utilisation ratio of 30 percent. A higher usage indicates that you could be in a spot or more of financial trouble and are heavily dependent on debt to manage your finances.

  • New credit: Every time you apply for fresh credit, a hard enquiry is made against your CIBIL report. While temporary – say for a few months – each such enquiry will drag your score down a little bit each time. So, ensure that you apply for a fresh line of credit – be it a loan or card – only if you absolutely need it. This also helps you stay away from unnecessarily walking into a debt trap.

  • Old accounts: Like the saying goes, old is gold! But, in this case, only if it is an account you’ve managed well, such as a credit card that has always had good payment history. Even if you don’t use this card at present, don’t close an old, good account. This can add weightage to your credit score.

  • Apply for a credit card: If you’re a first-time entrant to the financial world with no credit history whatsoever until now, this is the time to apply for a credit card. This can be your first step towards building a robust credit history. Do make sure that you pay on time and ideally in full, so that the card proves to be an asset over the long run, as far as your credit score is concerned.

  • Manage a healthy credit mix: When your score is calculated and also when a potential lender looks at this score, they’re happy to see a report that contains a well-balanced mix of all types of credit. This could include both secured and unsecured loans.

Your next steps

Now that you’re aware of what a high credit score can do for you, don’t forget to request for a free CIBIL report at the earliest. To take charge of your financial health it’s important to know just how your credit report fares. Remember that there will likely be a loan for low CIBIL score with some financer offering the option, but that is not the place you want to be.

Take charge of your financial health starting now!