Credit Score: Its Calculation and Impact on Personal Loan Applications

Though much has been said and written about credit scores and their role in the traditional loan application process, not many people know how it is calculated or how it affects their loan applications.

You may receive telemarketing calls all day long, asking whether you need a loan, only to get turned down when you apply. To get you up to speed, in this post we discuss how a credit score is calculated and how it impacts your personal loan application.

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How is Your Credit Score Calculated?

The calculation of your credit score is based on several factors. The most important ones include:

Repayment History

Your repayment history is a collection of all the information about the payments you have made for older debts, with an acute focus on compliance with timelines.

Weightage: Up to 35 per cent

Credit Balance

Your credit balance is the unused part of the credit limit sanctioned to a lender by your lending company. For a lender, the higher the utilisation, the greater the risk of the borrower defaulting.

Weightage: Up to 30 percent

New Lines of Credit

While maintaining a healthy mix of credit is advisable, adding too many new lines of credit can reflect that the borrower is too dependent on credit. Be careful while adding new credit lines.

Weightage: Up to 15 percent

Credit Mix

The mix of short-term and long-term, secured and unsecured loans also has an impact on the creditworthiness of a potential borrower.

Weightage: Up to 10 percent

How Does Credit Score Affect Personal Loan Applications?

When processing applications, personal loan providers treat your credit score as one of the definitive measures of your creditworthiness. Generally, to qualify for personal loans, you need to have a credit score of 700 or above.

If you have a lower credit score, your application might still be approved, but most likely, it will be done at a higher interest rate.

So, before reaching out to personal loan companies, it is always advisable to check your credit score. KreditBee can help you obtain your credit report through authorised partners.

Conclusion

Most people don't worry about their credit score until their loan application gets turned down. Various companies offer personal loans even to those borrowers with less-than-perfect credit scores.

If you are looking for the easiest way to obtain a personal loan, look no further than KreditBee. Download the KreditBee app, complete your profile, and get your loan disbursed in as little as 10 minutes!

To learn more, you can write to us at [email protected] or reach us at +080 44 292 200.