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How Lenders Check Your Ability to Repay Loans with Credit Report

20-Oct-2018 written by : FSI-Team

Ability to Repay Loans with Credit Report

If you are looking for a personal loan or home loan, then it's important to check your credit report first. This is because no matter which bank you go to, they will review your report before deciding what to do with your loan application. In fact, it's a standard practice for the banks to check the credit history of loan applicants to measure the risk factor.

The following are some of the details that a lender checks in your report to check your ability to repay loans:

1. Credit Score

Credit score is the most important aspect of a credit report. It summarizes the creditworthiness of an individual into a numerical value. For instance, a CIBIL score ranges from 300 to 900, and the higher is your score, the higher is your creditworthiness i.e. ability to repay a loan.

Most banks consider a CIBIL score above 750 "good". So, if your score is low, you must increase it to 750 or above to make sure that your loan application is approved. If you don't know what your score is, then you can apply for a free credit report by visiting the official website of CIBIL and following a few steps that are explained on the website itself.

2. Credit History

Your credit report contains all the details of your past loans, bank accounts, income, missed/late payments, etc. So, a lender can conduct an in-depth analysis of your attitude towards credit management and your current financial situation by going over all this information. They can also check if your name is on a loan defaulter list which is to check if you have ever defaulted on a loan, something that raises a big bright red flag.

The following are some of the most important details in your credit history that most lenders check:

  • Payments: These pertain to the credit card payments and loan EMIs. Ideally, the report should show that all payments have been made on time, although a few late payments (not in a row) won't affect your score a lot.
  • Mistakes or Typos: Your personal details such as name, address, etc. and financial details including bank accounts, loan accounts, etc. should match with the other documents provided by you. If there is a mismatch, then the lender may reject your loan application considering it a possible fraud (identity theft, usually).
  • Credit Variety: If your free credit report has details about various forms of credit including credit cards, personal loans, home loans, etc. then your credit score can increase higher than having a report with just one form of credit. Naturally, the lenders like to see more credit variety in the reports.

3. Income and Expenses

A bank won't approve a loan that has an EMIs of Rs. 10,000, when the monthly income of the applicant itself is Rs. 20,000 and they are living in a rented house. This is because in a situation like this, there is a huge possibility for the applicant to end up in a loan defaulter list.

Your credit report contains the details of your income, bank accounts, etc. which helps the bank to determine how much money you can actually save every month to pay the EMIs without fail.

4. Current Debt

A lot of times, when someone applies for a personal loan or home loan, they are already repaying another loan. This means that a certain portion of their monthly income is spent on the EMI. So, the remaining income should be high enough to pay for another EMI which comes with the new loan.

5. Remarks

Most of the fields in a credit report are fixed which include credit rating, past payments, personal details, etc. However, the lenders are allowed to add comments in the report as well which can help the future lenders get a clearer idea of an individual's credit profile. For instance, if you had a dispute with a lender in the past, they may mention that in your credit report and it can affect your loan applications in the future.


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