Why Having a Healthy Credit Score May Not Be Sufficient
Aug 18, 2015

Many of you may have received a call from banks, asking if you require a personal or an unsecured loan. Banks keep a track of transactions and average balance closely, and give prospects a call. Many who are hard pressed even opt for such a loan, despite the rate of interest being relatively pretty much high, since the paper work involved is less.

But before you opt for such a loan, it is vital to recognise how well you score on your credit worthiness. Reach out to a credit information company (such as CIBIL, Equifax, HighMark) and know your credit score. A credit score tells a lender how good or bad a borrower you have been. Higher your credit score, the better a borrower you are. This means that you would probably make your payments on time...and hence lenders would face a lower risk of default from you. Similarly, lower your credit score, higher the risk that you will default.

Banks usually do a check at their end as well to assess your credit worthiness. But knowing your credit score is not the only thing that your lender will look at before approving your loan application. Here are some other factors that the lender may assess before granting you a loan...

• Salary:
  Your repaying capacity is what the bank will try to judge. Thus they might demand you to furnish your salary slips for the last few months. The amount of salary that is considered 'adequate' enough, would depend on the loan amount applied for, your expenses, outstanding loans, the city that you reside ; among a host of other things.
   
• The company you work at:
  Mostly all Indian banks categorise employers or the company you work at into different categories based on the popularity and size of the company. If you work at a company that comes under the highest category as per the classification of the bank where you have applied for a loan, then you might be eligible for a higher loan amount at a lower rate of interest along with some other offers.
  
  On the other hand, a person belonging to a company that is classified in the last category, might not be eligible to procure a very large loan amount and / or might have to pay a higher rate of interest with no additional benefits. Remember that every bank might classify every employer differently.
   
• Job term:
  Banks or other lenders may also analyse the time period since you have been working at your current job and even the number of years of work experience so far. A higher time span in your present job may work in your favour while procuring a loan. Lenders may also visit your employer in order to verify your details.
   
• Your current life stage:
  If you are in a stage of life where you are settled, have started your own family and have been residing in your current house since long, the bank may not be extremely hesitant in granting you an unsecured loan. Nevertheless, the economic life cycle may also be delved.
   

PersonalFN is of the view that while your credit score is extremely important in case you wish to apply for a personal loan, the aforementioned factors also play a crucial role in determining whether or not you will be granted a loan and if yes, then on what terms. You must keep in mind that personal loans being unsecured in nature have a relatively higher interest rate attached. Thus, such loans must be opted for only when you really need them.

PersonalFN also believes that taking credit whether in the form of loans or swiping credit cards must only be done if you have the means to repay on time. There is no point stretching beyond means and landing up in a situation of debt-overhang. Being a reckless spender or even a borrower can be damaging to your long term financial wellbeing, which may go on to jeopardise your long term financial goals.

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