CIBIL score, also known as credit score, is the meter of your financial health. When you apply for a loan, the lender needs to know that you are a responsible borrower and that you will return the amount on time. Most financial institutions do not want to lend a loan to risky borrowers. People who are financially undisciplined and do not make their payments on time are marked as risky borrowers. Therefore, financial institutions report loan accounts to a common entity known as a credit bureau. All types of loans, whether they are taken from a conventional lender or a loan app, get reported to the credit bureau.
Now, if you take a loan, the lender will report the same to the credit bureau and the bureau will keep a track of your payments. Based on your repayment behaviour, the credit bureau will assign you a 3-digit score known as your credit score. The score ranges anywhere between 300 and 900. Everyone starts with an assigned score. As you keep on paying your loan on time and end them as due, you keep on building your credit score. In case a payment is missed or if the loan goes into default, it hits your credit score. Lenders take your credit score into account before approving your loan or deciding your interest rates.
Why you should keep an eye on your credit score…
When you apply through a quick cash loan app, the system will check your credit score before presenting you with the loan options. It is very important for you to check your credit score before you apply for a loan from a loan app. Here are six key reasons behind this.
- It can allow you to check who will lend to you and who will not
First of all, there are a number of lenders who simply refuse to lend to anyone whose credit score does not meet their minimum eligibility limit. This is not very common in the case of loan-app-based lenders. But conventional lenders tend to follow this eligibility criterion. A quick cash loan app can also use artificial intelligence and machine learning to better predict lending models and thus can lend to a wider group of people.
- It allows you to check how much a lender will give you as loan!
Generally, lenders consider your income and current liabilities to decide the loan amount you are eligible for. However, in many cases, the lenders also check on the credit score to check if a person has been applying for too many loans and if they have exhausted their borrowing capacity. If you know what your credit score is, you can work out if a lender will be open to giving you the amount that you seek. You can also work on improving your credit score by closing a few of your loan accounts.
- It allows you to check the loan tenure
The duration of a loan is another factor to which many lenders generally give a lot of importance. See, if you have a long track record of maintaining a high credit score, the loan app will be able to extend you a loan for a longer duration. The reason is simple. People who have long been financially disciplined in the past can be expected to continue to be financially disciplined for a long stretch in the future. This is why, if you know that you have a high credit score, you can apply for a long-term loan.
- It allows you to check how much interest you can expect!
Perhaps this is among the top reasons why you should know what your credit score is before you apply for a loan. It does not matter whether you borrow from a conventional lender or from a quick cash loan app, people who have low credit scores have to pay higher interest rates whereas people with low credit scores end up with the best deals in terms of credit score.
- It allows you to check how much processing fee or other charges will be levied:
While this is not a very common practice, in several cases, lenders may consider your credit score to determine how much processing fee or other charges may be levied on you. This practice is generally found in conventional lenders. Modern high-tech loan apps may offer flat fee-based systems since their cost of customer acquisition as well as business operations costs are much more optimised.
Finally, the most important reason why you must know your credit score before you apply for a loan is to avoid a hit on your credit score. An increased number of loan inquiries can also impact your credit score negatively.
Also, though the credit bureaus have very advanced systems for credit report generation, they are not flawless. Many times, your credit score can be impacted because of a discrepancy or error. If you check your credit score and find out that there may be a problem or misreporting which needs to be fixed.
Once you fix the credit report, the new lender to whom you apply will get an accurate picture of where you stand!