What Impact Does a Good or Bad Credit Record Have On Your Ability to Obtain a Loan With a Favorable Term?

 

Loans are long-term commitments. You have to get them with favorable terms so that they can be repaid comfortably. Your credit score and credit history play important roles in determining your loan terms, so pay attention to your credit history to ensure that it is always good. 

We all want to live our lives without taking loans. But certain societal obligations and personal needs can be fulfilled only with the help of loans; like buying a house, getting a car or even a two-wheeler, kids’ higher education, our marriage, or some kind of medical emergency; all these are high expenditures and we may have to take a loan from a bank or an NBFC to sail through these situations. 

There is absolutely nothing wrong with getting a loan. We just need to stick to our commitment and repay it on time. 

There are so many different types of loans for different purposes; like a home loan, car loan, business loan, personal loan, gold loan, etc. The loan amount differs based on your needs and so does the interest rate, based on the type of loan. There are many factors that affect your loan eligibility. The credit score is the most important of them all. 

Your credit score is what indicates your credibility to the lender. They want borrowers who have a good repayment capacity and a good repayment history with their other loans. This ensures that the disbursed loan shall not become an NPA (Non-Performing Asset). 

Positive Effects Of A Good Credit History On Your Loan Terms

A good Credit Score ranges between 700 – 900. Such a high score can get you a good loan amount and good interest rates as well.

  • A good credit score indicates a lower risk, which translates to a reduced risk percentage added to your loan interest rate, resulting in a lower effective interest rate on your loan.

 

  • Improved Loan and Credit Card Approval Chances: When you apply for a loan or a credit card, every lender looks at your credit score and reports first. This is known as a hard inquiry, and it can have a negative influence on your credit score. If the application is denied, the consequence could be detrimental to your credit score. However, if you have a decent credit score, your chances of getting credit are better because lenders will not have a compelling reason to reject your application.

 

  • Higher Credit Limits: Your salary, paired with a solid credit score, is a major factor in whether or not you are approved for a loan or credit card. These can help you obtain a larger loan or a bigger credit limit on your credit cards. Because of these two considerations, lenders will assess your creditworthiness and believe you to be a responsible borrower. If you have a low credit score, you may be able to receive a loan or a credit card, but the interest rates and credit limit will likely be higher.

 

  • More negotiating power: If you have a bad credit score, you’ll have a harder time securing a loan at a lower interest rate. The repayment of these loans may become difficult in the future. The applicant will also have little negotiation power when it comes to requesting a lower interest rate. Individuals with an excellent credit score, on the other hand, will have a better chance of getting approved for loans and credit cards. They will also be able to negotiate cheaper interest rates with lenders by comparing offers from different lenders.

Negative Effects Of Bad Credit History On Your Loan Terms

Just as a good credit score can get you great loan terms, a bad credit history will have an adverse effect on your loan eligibility. 

  • A low credit score may make you appear as a risky buyer or borrower, and you risk being blacklisted by lending businesses and other financial institutions.
  • Applicants with a low credit score generally get only a limited number of credit possibilities.
  • Due to a poor credit history that includes unpaid EMIs, liabilities, and past-due credit card dues, among other things, your loan applications or credit requests are more likely to be declined.
  • As part of the hiring process, a lot of companies check an applicant’s credit history. Your prospects of finding work are greatly reduced if you have a poor credit history.
  • A negative credit score can be bad news if you want to start your own business. You will never be approved for credit by any lending firm or financial institution.

Also Read: Top Factors That Affect Your Credit Score

Your credit score is determined by a number of elements, including your payment history, credit utilization ratio, credit age, credit mix, and the number of hard inquiries, among others. If you have a good combination of all of these variables, you will have an excellent credit score. Even if all of these variables are present, achieving a high score takes time. A low credit score can be caused by a variety of factors. A low credit score can be disappointing, but with proper credit management, it can always be improved. Clearing your past dues with the lender will help you boost your credit score.

 

 

 

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