Credit score: Banks take THESE 5 key decisions based on your creditworthiness
Such a high credit score and unblemished repayment history significantly influences loan approvals by making the entire process easier along with more friendlier interest rates.
The Reserve Bank of India (RBI) has also played an integral role in developing the credit score ecosystem in the county. The RBI basically licenses and regulates credit bureaus in the country under the Credit Information Companies (Regulation) Act, 2005. This again explains the importance of maintaining a clean and healthy credit profile.
Rishabh Goel, Co-founder & CEO, Credgenics, says 'When you apply for a loan or credit card, your credit score gives lenders a quick overview of your financial habits and creditworthiness. It reveals key insights such as your payment discipline, whereas delays in bill or loan payments signal risk; outstanding debt levels, where high balances may indicate financial stress; the length of your credit history, which helps gauge long-term financial behavior; your credit mix, showing how well you manage different types of credit; and recent credit activity, where multiple applications may suggest instability. Together, these factors help lenders assess how likely you are to repay borrowed funds responsibly and on time.'
Hence, keeping the above factors in mind, let us understand the five key insights lenders derive from an individual's credit score: Creditworthiness assessment: Financial institutions and lenders check your credit score to understand your creditworthiness and reliability in repaying the availed debts. A higher credit score and a clean repayment history indicates a lower risk profile. This enhances the chances of the borrower of loan approvals and seamless credit card clearance. Determination of interest rates: The credit score assigned to you directly influences the applicable interest rates offered. Borrowers with higher credit scores easily receive loans in a smooth fashion. This results in the reduction of the overall cost of borrowing. Credit limit decisions: Banks consider your credit score while setting your credit limits and the maximum amounts they can risk on you as a borrower. A higher score suggests a safe borrower thus a higher credit limit naturally. This also helps borrowers in providing greater financial flexibility. Loan terms and tenure: A strong credit profile or a strong credit score i.e., any score in the range of 750 or more can positively influence the terms, tenure of the loan. Such a score has the potential to offer more extended repayment periods and better conditions. Clearance of premium credit products: Premium credit cards, enhanced benefits and lucrative rewards all become possible with a clean repayment history and a higher credit score.
The RBI has now mandated all banks and NBFCs to update credit bureau records every 15 days. This is a reduction from the earlier monthly cycle.
Under this new regulation lenders are required to submit credit information to credit information companies (CICs) such as CIBIL, CRIF High Mark, Experian and Equifax among others on a fortnightly basis.
The CICs then must process and update this data within the stipulated time. This simple step hence ensures that the credit profiles of borrowers are updated and current.
The development also allows borrowers to track their credit health more proactively and consistently. Thus helping lenders base decisions on real-time data, improving accuracy and trust in the credit ecosystem.
Therefore, maintaining a clean credit profile and strong credit score is crucial for easier loan approvals, favourable interest rates and superior credit limits. With RBI's timely updates borrowers benefit from accurate credit profiles, fostering smarter lending decisions and improved financial opportunities.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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