Thursday, 1 December 2016

How do I Assess my Creditworthiness?

If you are going to apply for a SBI car loan, icici personal loan, or rather any kind of loan then your creditworthiness will be a crucial factor in the approval or rejection of your application. Almost all lenders base their judgement on the applicant's credit history, and other factors that sum up the creditworthiness.
Even though different lenders have different standards for measuring creditworthiness, almost all will take 3 C's into consideration. You can use these to assess your creditworthiness.
Capital: This refers to the capital you possess, or in other words- the balance in your accounts. Lenders also check your monthly earnings to understand your creditworthiness. If you are making a decent income, which is consistent, then you are likely to have high creditworthiness.
Collateral: Capital alone is not sufficient in determining how reliable you are credit-wise.  If you have any property that can be pledged for security then the lender can get comfort in the same, and feel safe with sanctioning your loan. However, if the property is already pledged against some other loan, then they can't use it for security, and may want to wait until the loan has been paid off.
Character: Believe it or not, your character can make a huge difference in your creditworthiness. Have you ever declared bankruptcy in the past? Has your name ever been on loan defaulters list? Does your credit report reflects poor money management? By answering these questions you can learn a lot about your credit-related actions, which actually affect your loan applications.
For personal loans that are to be used for business investments, lenders also take some additional factors into account for assessing the applicant's creditworthiness.  These are:
Conditions: Economic and industrial events may occur during the tenure that may affect your business. For instance, rise in the prices of raw materials that your business is dependent on, or employee strikes, etc. can damage your business, and pose a risk for the lender as you can have difficulty repaying the loan.
Inventories: The inventories that you own also affect your creditworthiness. However, unlike most people believe, a large inventory doesn't pass for collateral that the lender may take as a backup for security. In most cases lenders don't expect any business to make enough money selling off inventories for repaying their loan, especially in a short period. What they consider a good sign though- is how fast you rotate your inventory. This shows how efficient or successful your business is.
Other than the factors above there is one major aspect that is the most important for reflecting reliance to your lenders- CIBIL rating.
Your CIBIL score and CIBIL report will determine how likely you are to get a loan or credit card approved in the future. To get a personal loan for low CIBIL score is almost impossible in today's economy. Banks have become more stringent than ever. Thus, if you want to truly assess your creditworthiness, make sure you check your credit score first.
How to Check Your Credit Score?
There are a few major credit bureaus in India that provide credit reports for individuals and businesses. However, the one that's most recognized all over India is CIBIL (Credit Information Bureau India Limited). Thus, you can check your CIBIL score to get an idea of where you stand with your credit usage. Fortunately, obtaining a report is simple. All you have to do is go to their website and fill out a form, and upload a few mandatory documents. If all goes well, you can get your report within a few days, either via email or at your home via snail mail.
A CIBIL score ranges from 300 to 900 for everyone. Generally, a score that is greater than 750 is considered decent. If yours is lower than that, you can start paying your EMI's timely, and use your debt wisely to improve it. If your score is lower than 500 then it will be tagged as "poor". You will need to make a lot of changes in your credit spending habits to improve the score.

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