It happens that sometimes you think that you have scored enough marks to make your happy, but you still fall short of their expectations. It disappoints you and makes you feel like a loser because all you wanted was a smile on their face, but unfortunately, that couldn’t happen.
It’s the same when it comes to CIBIL Scores. You might have a very high score, but still, your loan doesn’t get sanctioned. It crushes all your dreams of buying that house or that dream car which you had long wanted to. Scoring high but still not getting through is the worst thing. CIBIL score represents your creditworthiness, but again, people with ratings as high as 800 to 850 get rejected regularly.
First of all, we have to overcome the myth of CIBIL Score which according to some of the credit agency has to be above 750 to be eligible for that loan. It’s not about the high score, and it’s about the quality of that score. It’s not only about the CIBIL score, but it’s also about good credit behavior which gets accredited with the sanctioned loan amount.
The borrower always forgets about his credit behavior in the race towards securing high CIBIL Score.
How can a high CIBIL Score qualify for a bad score?
CIBIL Score is a very tricky concept. There are many factors which go into the making of this score and this sometimes confuses the lender also. Let’s get the hang of these scores first and how they are scrutinized by the lenders.
For, e.g., there are two students, A and B. They both score 50% and 60% respectively out of three subjects. But A manages to get a rank in his class but B can’t despite scoring more than A. The reason behind this is A’s marks were 60, 50 and 40 respectively while B’s marks were 80, 70 and 30 respectively. Here we see A has reached 40 or above in all the three subjects but B has failed to do so in the last subject and according to the rules of that particular school each and every student has to cross 40 to be ranked in their particular class. So, here though B has scored more but the quality of marks kicks in, and he fails out on achieving a rank. But this can’t be the same in all schools due to the difference in policies.
This is precisely the same thing which happens with Credit Score. They not only keep a check on the creditworthiness but also on the quality of credit and the credit behavior of that particular borrower. Different banks will have different ways to scrutinize your score and act accordingly. You may avail unsecured loans to improve your Credit Score but remember that the secured loans also count.
This scenario is just like some of the entrance exams wherein you clear the total cut-off but miss out on the individual subject’s cut-off. This is the best way a CIBIL Score can be explained where it’s not just about the creditworthiness but also the quality of credit. The types of loan taken and the procedure of repayment.
Measuring the difference between scores
So, the biggest question in your mind might be, how does the bank take the decision?
We often see people with low CIBIL Score getting preference over people with high CIBIL Score. The closely assessing the CIBIL Score takes this decision. They look at the types of loans. They examine the limit of your credit and how frequently you are exceeding that limit. The frequency of taking loans and the time period for which the loans are taken is adjudged.
Another reason behind people with a low score being preferred more is that the person might not have a credit history. People with unstable credit history are preferred more than the persons who haven’t taken any loan at all. As said above, it’s the quality that matters and not the quantity. The difference in interest rates will act as a parameter while sanctioning loans.
What do you do if you fail?
Usually, the non-banking financial institutions(NBFCs) generally do not read much into the scores. Instead, according to records, they can sanction loans to people with scores as low as 350 but at higher interest rates. You can also reach out to your friends in case your credit scores fail you in availing a loan. You can go for online peer-to-peer borrowing sites and meet your requirements.
Avoid going to a bank when you have a low CIBIL Score because that will worsen the score because every time you go and inquire about your loan availability, it goes into the bank records. So, it’s better to be on the safe side. Sometimes, the low scores can also be the results of the mistake in recording the values which can affect your position as a borrower. It all boils down to how you will convince your lender regarding these factors and get your loan sanctioned. Another way to get a loan is to approach new banks, but you will have to deal with high-interest rates in comparison to the already established banks. If you are not in a hurry and are planning to raise a loan, it’s better to check your Credit Score beforehand and work on bettering it.
All said and done, Credit Score does have a say whether or not you are eligible for a loan. High CIBIL Score may be attractive to the naked eye but remember further scrutiny is what that will decide you are becoming a borrower. So, take care of it by clearing your credits regularly and make it a quality score rather than a quantity score.