21-Jul-2018 written by : FSI-Team
Loans! A great financial help one can get at any given point in time. But, it's not a cake walk. While taking a loan there are various factors that come into consideration. Right starting from which loan is best suited for your need, which bank would you choose, which bank is offering the lowest interest rates at your tenure requirement, how much would you end up paying per month and much more. These are the basic things which one should know about loans. But, there is much more to it. Let's explore.
How well do you know about interest rate being calculated against your loan amount? Why does the interest rate vary from person to person? The answer to this question is credit score. With this answer, to the very layman; the question arises is, what is a credit score? A credit score is a 3 digit number, between 300-900 where 300 is the lowest and 900 being the highest. It is made of you past behavior which is related to your credits. How much have you taken till date, how responsibly have you repaid, which types of the loan have you taken, were they secured or unsecured, were they fixed type of credits or revolving based credit, how often did you open new accounts and since how long are your credit accounts established. The combination of this results in your credit score. Each factor is given different amount of weightage and according to that, an algorithm is being set. There are 4 bureaus in India who gives the credit score and they individually decide the algorithm.
For everyone, it is important to know that what banks usually see with a credit score is your credit history. No financial institutions say a Bank or an NBFC would let their NAV ( Net Asset Value ) go down. They would not want to drag themselves into bad banks. And how would they achieve that? By seeing the credit history of any individual, the bank or NBFC personal commonly known as an underwriter, decides if you will be the liability to the bank or an asset! I suppose you have made defaults earlier, like not paying your EMIs on time, series of late payments, mis held credit, made a default on credit, didn’t pay the loan at all, filed bankruptcy, or called for too many credits, shows the irresponsibility. Its shows that probably even this time you won't be serious again and the bank would have to look after what they can do to get money from you which they had landed with the faith of proper repayments.
Sometimes, there can be a genuine reason. You can't always be in loan defaulters list. You can speak to the lender and explain to them if you have a genuine reason. They would understand if there was a financial crunch at your side, and the only reason for late payments and missed payments was the sudden burden you had encountered. When things like these happen, underwriters may think of giving you second chance. And lend you that amount of loan. But make sure, you do not repeat the same mistakes again. As your credit score would be on major toss this time.
If you are tired of applying but can't get the loan, you check SBI personal Loan. If you luck favours and seeing your credit history, they may approve the loan if you are planning your wedding or a holiday destination, some home repairs or some dues you had to pay. But, yet again to make your credit history sharp and sustainable, make sure you pay all the installments seriously this time. Not even one payment should be missed or delayed. Be a responsible payer. Make your history stronger so that whenever you plan to take a loan or ask for higher limit credit card, you don’t have to face rejection.
To sum it up, if you have a good credit history, it leads to better credit scores.