How Important is the Credit Score Report in Personal Loan Sanction?

Get Kotak League Platinum Credit Card & earn 8X reward Points on your every spends of Rs.150 across all categories.
Know More
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
At your request, you are being re-directed to a third party site - https://www.billdesk.com/pgmerc/kotakcard/ wherein you can make your payment from a different bank account. Kotak Cards does not guarantee or warrant the accuracy or completeness of the information, materials, services or the reliability of any service, advice, opinion statement or other information displayed or distributed on the third party site. You shall access this site solely for purposes of payment of your bills and you understand and acknowledge that availing of any services offered on the site or any reliance on any opinion, advice, statement, memorandum, or information available on the site shall be at your sole risk. Kotak Cards and its affiliates, subsidiaries, employees, officers, directors and agents, expressly disclaim any liability for any deficiency in the services offered by BilIDesk whose site you are about to access. Neither Kotak Cards nor any of its affiliates nor their directors, officers and employees will be liable to or have any responsibility of any kind for any loss that you incur in the event of any deficiency in the services of BiIIDesk to whom the site belongs, failure or disruption of the site of BilIDesk, or resulting from the act or omission of any other party involved in making this site or the data contained therein available to you, or from any other cause relating to your access to, inability to access, or use of the site or these materials.
Note: Available in select banks only. Kotak Cards reserves the right to add/delete banks without prior notice. © Kotak Mahindra Bank. All rights reserved
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
By clicking on the hyper-link, you will be leaving www.kotak.com and entering website operated by other parties. Kotak Mahindra Bank does not control or endorse such websites, and bears no responsibility for them.
To meet your short-term monetary needs, there are distinct options available in the market. In an ideal situation, you must hold a financial backup in the form of an emergency fund in your savings bank account for financial needs. But if you are one of those with no financial backup, you are left with only one option i.e., hit on the personal loan apply option. Such loans do not require you to provide any collateral and they permit you to use the disbursed loan proceeds for your varied needs. However, as they are unsecured in nature, lenders consider reviewing your credibility by fetching your credit report to determine your creditworthiness and repayment potential to fix the personal loan interest rate on the loan accordingly.
As a personal loan requires no security for the approval and disbursal of your loan proceeds, the sole parameter that lenders use to determine your credibility is your credit score. While there is zero assurance that if you hold high credibility, you will repay the outstanding dues according to the schedule, still your report check is mandatory for lenders as it reveals your previous credit behaviour, which allows them to determine how your repayments would be. So, if your credit score is 750 and above, this means you meet the credibility threshold, and most lenders may agree to approve your personal loan application request.
Notably, a slightly lower credit score or default on a few loans does not necessarily infer outright personal loan application rejection. However, this puts you in the high risk category and to compensate for the high risk in lending to you, many lenders may charge a higher personal loan interest rate and other charges. Note that in a few cases, some lenders on evaluating your risky credit profile may turn down your personal loan application too.
So, it is recommended to always maintain a high credit score as the need for a personal loan is uncertain and can knock on your door at any time. In scenarios when a personal loan need is immediate, it may be difficult for you to instantly increase your credit score if it is low. This is because building a score takes time and patience and, in a few cases, it may even take over a year. You can improve your credit score by following credit-healthy activities. These include timely repaying your credit card dues and loan EMIs in full, maintaining a balanced mix between secured and unsecured credit options, maintaining a credit utilisation ratio of within 30 per cent, constantly keeping a track of co-borrowed and guaranteed loan accounts for their timely repayments, and periodically fetching and reviewing your credit report to detect any errors or mistakes.
Ending note
A personal loan is an unsecured credit option wherein you do not require to furnish any collateral to avail the loan proceeds. Owing to this reason, most lenders depend on your credit report to determine your personal loan eligibility chances. Your score does not only determine your loan approval chances but even tends to provide you with a lower processing charge, affordable personal loan interest rates, quicker approval, convenient personal loan EMIs, repayment tenures, and eligibility to avail higher loan proceeds.
However, before you hit on the personal loan apply online option, ensure to use an online personal loan EMI calculator to compute your personal loan EMI, preferred tenure, and rate of interest as per your repayment potential. Based on these computed figures, ensure to negotiate with the selected lender to avail a suitable loan deal.
Additional Read: Here's how a personal loan can be a smart choice for millennials
You have already rated this article
OK