Credit score and credit report play a crucial role in today's financial landscape, serving as indicators of an individual's creditworthiness and ability to repay loans. Banks and financial institutions often assess these factors before approving loans or credit card applications. A good credit score not only increases the likelihood of loan approval but also typically results in lower interest rates, among other benefits.
A credit score, typically a three-digit number, is generated by credit bureaus or credit information companies, with the CIBIL score being one of the most widely recognized. A score ranging from 700 to 750 is generally considered good, enhancing one's chances of loan approval and securing favourable interest rates.
The impact of a good credit score on loan interest rates can be significant, with financial planners noting potential differences of up to 100 basis points (1 percent) between individuals with good and poor credit scores. Even a slight variance in the interest rate can translate to substantial savings in interest payments over the loan tenure.
Before applying for a loan, it's advisable to check your credit score for free through the website of credit bureaus like CIBIL. Understanding current interest rates offered by various banks and non-banking financial companies (NBFCs) is also crucial. Armed with this information, individuals can negotiate with lenders for the best possible terms.
When discussing a loan application, highlighting a strong credit history and favourable credit score can work in one's favour. It's important to compare interest rates offered by different banks and financial institutions, remaining patient and not accepting offers hastily. Informing a bank of competing offers from other lenders may prompt them to match or even beat the interest rate, resulting in better terms for the borrower.
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