Wednesday, 31 December 2014

Credit Worthy - High Credit Score Helps Loan Applicants

Maintain a high credit score as it is very important in securing a home loan.
Credit appraisal is an important step in a home loan process:
  1. The appraisal is carried out by banks to evaluate the credit worthiness of prospective borrowers. The process involves assessment of various risks that can impact the repayment of a loan by the borrower.
  2. A credit appraisal is a process by which a bank assesses the credit eligibility of the home loan applicant. The bank follows certain norms to evaluate the credit worthiness of the applicant. The loan eligibility of a prospective borrower depends on his credit worthiness that comes out of the credit appraisal.
  3. It is a process to ascertain the risk associated with the extension of the loan. Credit risk is a benchmark that determines the scope for default on the loan obtained by a borrower.
Thus, it is necessary to appraise the credibility of the prospective borrower in order to mitigate the credit risk by assessing the financial condition and the ability of the applicant to repay the loan in the future. The factors considered by banks in ascertaining the credit worthiness of a loan applicant are: age income qualification experience employer, nature of business security of tenure tax history assets owned, investments, additional sources of income other loan obligations CIBIL report crucial nowadays, banks put a premium on the credit score based on the credit report from the credit information bureau (India) ltd (CIBIL). The CIBIL score goes a long way in ascertaining the loan eligibility of a prospective borrower.

Borrowers can also directly approach CIBIL for access to their personal credit score, as CIBIL consolidates the credit information of individuals:
  1. It collects credit information, collates it and circulates it back among its members, on request. The members are banks, financial institutions, housing finance companies, credit card companies and other lending institutions.
  2. CIBIL provides information in the form of a credit information report (CIR), which contains details of all credit facilities availed by the prospective borrower, past payment history , amount overdue, inquiries made by the borrower with different lenders (banks, etc.), suits filed if any, etc.
  3. CIBIL then computes the credit score, called CIBIL Transunion score, which is the summary of the CIR, ex pressed in terms of a numerical figure. This score is arrived at by analyzing the details available in the CIR, and varies between 300 and 900.
  4. This score indicates the likelihood of a prospective borrower repaying the loan, based on his pattern of credit usage and loan repayment history. As such, with a higher credit score, higher will be the comfort level for credit approval.
Evaluation for Credit Score:
  1. The credit score is calculated on the basis of repayment history, use of credit facilities, concentration of higher unsecured loans and inquiries made with various lenders for credit facilities.
  2. If your repayment track on all existing loans is regular, you will get higher marks. If you have missed or delayed repayments on any of your existing loans, over the last two years, your score is likely to be lower.
  3. In case you use a credit card, overdraft facilities, etc., and diligently make repayments regularly without keeping higher outstanding amounts your score will be higher.

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