If you are someone who is planning to apply for a loan or have already applied, you must be aware of the importance of credit history in a personal loan application. No bank prefers to lend money to any individual with a bad credit history. There is a particular criterion that is simply stated in the introductory book of every bank, and if your credit score is below that set standard, it is very difficult for you to borrow even a single penny from the bank.
What Affects Your Credit Score?
Credit score usually gets affected by the previous loans that you have taken. In case of delay in repayment or a lot of due installments, your credit score gets negatively affected and hence leads to bad credit history in bank records. There are people who opt for settlement of a loan that they have taken, and in the settlement, you have to pay a lot less than what you have borrowed or what is due on you. At the time of settlement, it seems very easy to pay, because the amount is much lesser, but this highly impacts your credit score and makes you a non reliable asset in the bank records after which it is difficult for you to take any other loan in future. Hence, it is always recommended to close your loan with the foreclosure option where you might have to pay the entire due and even more, but then your goodwill is not affected in the records of the bank.
Credit Score Criteria
Credit score usually ranges from 300 to 850 score wise, where 300 is the lowest or very poor credit score and 850 makes the best score which is for the people who have paid each and every due or instalment on time without fail. Credit score also affects the interest rate that the bank is going to provide you. If your credit score is exceptional, you will get a very good interest rate that is not going to hurt your pocket at all. Credit scores are nothing but the goodwill of an individual or we can say borrower in the bank records.
As we have mentioned a lot of times that bad repayment methods can negatively impact the credit score, now most of you will think what if we do not take any loan, then our credit score will be the best. The answer is NO. Borrowing or taking a loan from the bank is very important to build your credit score. If you have not taken any loan in past, then your credit score will be zero, which is even worse than the lesser credit score because in this case it will be even more difficult for you to apply for the loan as you have no history or records in the bank, and you are a fresher, so the bank will take more time to analyze and trust you.
Does A Bad Credit Score Affect Your Loan Application?
If you are applying for a bank, be it a government bank or a private one, then yes, your credit score definite affects your loan application and they are going to judge you on the basis of your credit history that could be easily tracked by entering your document whereas, the case is very different when it comes to the private lenders and finance companies. These companies do not have any such criteria for the credit score. Even if you don’t have a good bank credit history, you can still apply for loans at these finance companies and there is enough probability that you are going to get it. Some of these companies work on collateral which means they will ask you for security, that could be any property papers or anything which is of great value, and sometimes they just lend the money on the basis of reference. So, it completely depends.
Every Lender Has Their Own Set Standards
Every lender, be it a private or government bank, or a random finance company, they have their own set standards or criteria of judging your credit score. These criteria are defined as Exceptional, Good, Average and Bad. Now every company has a different range or Credit score in each criterion. For example, a company might consider a 550 score as a good credit score whereas the other company might consider it the same as a bad credit score. The best way to pick the right lenders whose criteria suits your credit score is to consult with a Financial Advisor who has deep knowledge of every lender and their process.
To Sum Up
So, if you are also applying for a personal loan and facing difficulty in selecting the right lender with the most probability, then you should always connect with a financial advisor to get the best results. Bad credit score may or may not be an obstacle in your way to take out a loan. It depends on what financial decisions you actually make.