A credit score is one of the most crucial factors out there as it helps the borrower to get a genuine loan from a reliable lender or banking institution. A credit score is a three-digit number that shows your creditworthiness and represents a good or bad image based on the same. The higher the credit score, the higher the chances of loan application approval. The lower the number, the reduced chances of getting a loan approved. Various factors affect your loan approval and application like your income, age, incomplete documentation and most important low credit score. In credit score, various factors may hinder your loan approval like your bad credit history, inactive credit account, more than one credit in hand, bad reputation with your lender, length of credit history etc.
Whether you are borrowing a short-term personal loan or a long-term equity for financing your dream goal, you can face several issues in the successful application process and the approval of your loan.
Here, in this blog, you will know how credit score affects your application process and loan approval. Follow all the steps carefully:
Factors Related to Credit Score Which May Affect Your Loan Application
Lower Credit Score
One of the major factors that affects your loan application and approval is the low credit score. You have to assess your creditworthiness to get good deals in loan applications and quick approval. If your credit score or CIBIL is lower than expected like below the range of 600 or 500, then you are not entitled to borrow any type of loan whether it is a short-term personal loan or a business loan.
Bad Credit History
One of the major reasons you have got your application rejected or your loan is disapproved is your bad credit history. If you haven’t made regular debt payments have a history of continuous missed credit payments or fail to have a good relationship with your lender or financial institution, then you may face a bad credit history. In this case, your loan application will be rejected by any lender or banking institution.
Inactive credit account
If your credit account is inactive for a long time, then you may face rejection of your loan application or approval for the same. So, it is necessary to open an old credit account as it will help your bank or financial institution to access your credit history very easily. An inactive credit account marks a bad reputation and impression on your lender and the banking official due to which he/she can refuse to offer you a new loan and approval.
Having a History of Late Repayment/Missed Payment with Penalties
A missed or late debt repayment may lead to several penalties and these things are recorded in your CIBIL account. When your bank or lender checks your past transactions or creditworthiness, he will surprised with continuous late repayment and missed payment records. In this case, he may refuse to provide you with a fresh loan. Here, you will refrain from meeting your financial obligations on time due to disapproval of your loan.
Incomplete Documentation and Failure to Show Good Credit
An incomplete application form and bad credit may affect your loan application and the approval process too. These things bring a bad impression on your lender and bank. So, it is recommended to provide complete documents to your lender with a good credit score. These things will help you a lot in bringing stability to your finances. The lender always wants a good impression with a healthy credit history and with the full and final documentation process. If you fail to do the same, your lender may refuse to provide you with a new loan application.
Having Many Credit Accounts
Having various credit accounts may also lead to the rejection of your loan application and the approval for the same. Lenders think that the borrower can’t manage their budget and thus he has opened lots of credit accounts. These accounts will show how weak your budget management strategies are.
Unconstant Flow of Income/Payment Source
You have to show your lender that you have a continuous flow of income or have a stable income source in hand. Make him convinced that you can easily manage your budget in pay your debts on time. These things will help your lender to acknowledge your request and provide approval for your loan application.
Summary
A credit score is one of the most necessary things that lenders consider for giving a fresh loan and its approval. Several things affect your loan application like bad credit history, incomplete documentation and bad credit, having lots of credit accounts, being unable to handle debts, not showing a history of constant flow of income etc.
