Credit Score in Personal Loan


What is Credit Score?

A Credit Score is also known as the FICO score, is the score based in the range of 300-900, which estimates the creditworthiness of the potential candidate or borrower. Lenders use this score to analyse the credit profile of the borrower before availing of debt. The credit score fluctuates as per one’s financial profile, which might affect the opportunity while availing a loan. 

The factors include repayment defaults and history, outstanding amount, length of credit history, credit mix, a new line of credit.

1) Repayment defaults and history: This is the most crucial aspect in building a Credit Score, as even one failed or miss payment can have a negative impact on one’s score. The creditors analyse this report to evaluate the risk of lending you a loan as repayment capacity is very crucial while obtaining any loan. This core accounts for 355 of one’s credit profile. 

2) Outstanding amount: There is a ratio in one’s credit profile known as the credit utilisation ratio used to evaluate one’s credit usage. Your credit usage ratio is computed by dividing the whole amount of revolving credit you presently have by the entire amount of revolving credit limits you have. If you have utilized more than 30% of the credit limit, then it termed negative by the creditors. 

3) Length of credit history: One’s 15% of the Credit score depends solely upon the length of repayments made from credit accounts. An average is taken of old credits, defaults if any present sand new credits and are estimated accordingly. The credit scores are generally high for extended credit history. 

4) Credit mix: Many people have a diverse portfolio where they avail several loans at a time such as Home Loan, credit card, student loan or several other credit products. A 10% credit score depends on the Credit mix as it analyzes all the accounts you have and their repayment.   

5) A new line of credit: A number of credit accounts opened by the applicant plus the number of hard enquiries made on one’s credit profile is considered. Eagerness for obtaining a loan is depicted when many inquiries are indicated on your credit, which can harm your Credit score and loan. 

While availing of an Axis Bank Personal Loan, the foremost thing considered while loan disbursal is the applicant’s Credit score. 

The types of accounts which usually impact Credit Scores

Credit files primarily contain information on two forms of debt: instalment loans and revolving credit. Revolving and instalment accounts are significant for establishing credit ratings since they maintain your debt and payment history record.

1. Revolving Credit- This type of credit, whereas the name suggests fluctuating over a period as home equity loans and credit cards are its types. One can spend as per the credit limit, and monthly repayment must be made according to the amount utilised/expended.  

2. Instalment Credit- This a type of Credit where one obtains a debt of a fixed amount, including the interest rates, and have to make regular repayments till the loan term. The loans such as Student loan, mortgage loans and Personal loans are forms of Instalment credit. 

What is a CIBIL Score?

When a creditor requests a credit request, the CIBIL score is one of the most crucial variables that practically every financial institution looks at. When you apply for a loan or a credit card, your most current score (from the previous six months) is reviewed. A score above 700 is regarded as outstanding, while some banks set the bar high and others are willing to reduce the standard. Thus, a CIBIL score and Credit Score are much different from each other. 

Conversely, most people get confused between Credit score and CIBIL Score as they both are different terms. While submitting an online application under the Personal Loan Apply online option, you must carefully read the terms and conditions and abide by the eligibility parameters. Document verification is also an important procedure in Personal Loan approval.