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May 19
What do Lenders do when you apply for a Loan?

What do Lenders do when you apply for a Loan?


Lenders are now equipped with precise and accurate credit report provided by the Credit Information Bureau Limited (CIBIL). This report has all the relevant details of your credit transaction including credit cards and loans. Since this data is collected from your transactions all over the country, whether you have defaulted on your credit card bills either in Mumbai or Madurai, you are still being monitored. Hence it’s important to work on different ways to improve CIBIL score or credit counseling.

What Happens when you apply for a Loan?

When you approach a bank or other NBFCs for a loan, your lender requests a copy of your credit history from CIBIL. This report contains all the details of your credit transactions along with a numerical credit score. This report contains your credit inquiries, repayment history, utilized credit limit, outstanding debts among various other parameters.

While two people may have applied for the same credit cards and have availed the same type of loan, their credit scores may be vastly different due to several other factors like age, location, employment, the number of dependents and so on.

In short, consider the credit report as a snapshot of your entire credit history.

A Powerful Tool for Lenders

In fact, a credit report is a powerful tool for lenders. This is because different borrowers have varying risk factors. Having the detailed credit history of a particular borrower is useful in identifying the risk accurately.

Lenders need not depend on their experience and guess the creditworthiness of a particular borrower. Instead, they can determine it objectively with the help of the credit score and history. It helps to distinguish between trustworthy borrowers and others.

What does it mean for the Borrower?

Are you wondering what this means for the borrower? Till now, lenders offered same the interest rate for all, irrespective of their credit history. Now, borrowers with higher CIBIL scores are offered better interest rates.

Also, a good credit score offers you additional benefits and discounts, since the lender considers you unlikely to default on your payments. (Check out your free credit score report)

It is, therefore, essential that you don’t mess up your credit score by missing out on payments or availing a huge number of loans.

What does the Credit history take into account?

CIBIL collates data of all borrowers from member financial institutions and credit card agencies. Based on this data, it prepares a Customer Information Report (CIR) for each borrower and also assigns a numerical score to help lenders to decide on the creditworthiness of borrowers.

The CIR contains

  • Repayment history of loans and credit cards
  • Payment schedule of utility bills and other miscellaneous expenses
  • History of your savings account, including details of bounced cheques
  • Outstanding Debts
  • The credit available on all your cards
The Importance of your CIBIL score

Your CIBIL score and credit history is an important factor in determining the outcome of your loan approval. So, check it from time to time to ensure that it’s accurate. If you find any discrepancies, you can directly approach CIBIL to rectify the error. You can also find out how to improve the cibil score.

Do you wonder why banks check your Credit History when you apply for a loan? Find the answers to all your queries in this article.

For several years, banks and other non-banking financial corporations had to rely on their judgment and discretion to gauge a consumer’s credit reputation. However, in the past few years, things have taken a turn for the better.

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