People generally seek personal loans during times of financial emergencies. These loans don’t have a strict collateral requirement and require only the bare necessary documents during the loan application process. If you urgently need funds, you can apply for a personal loan.
However, this doesn’t guarantee that you will get the loan amount. Not everyone who applies for personal loans is approved. The approval of an individual’s loan application depends upon the eligibility criteria that the lender has. Different lenders have different eligibility criteria. You must fulfil the eligibility basis of lenders to get the loan. In this article, we will study factors considered by lenders for loan approval and why paying your credit card on time is one such important factor.
Factors Considered by Lenders for Loan Approval
Each lender has its loan eligibility criteria that loan applicants must meet to get the loan approved. Some significant personal loan eligibility factors checked by lenders are:
- Credit Score: Your credit score is a reflection of your credit past. This number reflects your creditworthiness, with a high score signifying high creditworthiness. Multiple factors determine your overall credit score, like Credit Utilisation Ratio (CUR), different credit compositions, credit history, etc. Applicants with high credit scores are more likely to approve their personal loan applications.
- Income: The monthly income earned by you is also considered by the lender while examining your loan application. As the cost of living differs across cities, lenders have different income criteria for people living in different cities.
- Employment Type: If you are a salaried individual, the lender will consider your income and employment history to determine whether you fit their personal loan program. You must submit proof of income, like payslips or bank statements, to the lender. If you are self-employed, you must communicate your business’s profit and loss statement for a certain period to the lender.
Why Should You Pay Your Credit Card Bills Timely?
Lenders consider an applicant’s credit score, among many other things, in loan approval decisions. Below, we will discuss why you should pay your credit card bills promptly:
- Repayment History: Your credit repayment history reflects how you have paid your monthly dues and EMIs. It records the date, time, and day of all your credit transactions. Days Past Due (DPD), an acronym, is the number of days after the payment date. If you settle your credit card bills timely, the DPD will be zero. If you clear your credit card bills a day late, the DPD will be 1. A single DPD point reflects poorly on your credit score. As DPD rises, it increasingly influences your credit score negatively.
- Saves Money: Credit card companies impose penalties on late bill payments. Paying off your credit card bills due on time will help you avoid the late payment charges and thus save you money.
- Good Credit Behaviour: Your credit behavior reflects how you repay your debts. If you are paying your credit dues timely and regularly, it will positively reflect your credit behavior. It will assure your lender that you will continue to pay their loans regularly, as you did earlier. In turn, it significantly lowers the risk associated with your loan application.
- Improve Credit Score: Credit behavior is a constituent factor of an individual’s credit score. Paying your credit card bill on time will positively impact your credit behavior, favorably affecting your credit score. A high credit score will improve the probability of you satisfying the personal loan of the lender. Additionally, a good credit score is very beneficial. It provides opportunities such as:
- Low-Interest Rate: Candidates with a good credit score are charged a low-interest rate by the lender.
- Low Insurance Rate: Insurance providers factor in the applicant’s credit score while deciding your premium charges. Typically, a good score results in low premium payment.
- Higher Approval Probability: Loan applicants with high credit scores have a higher chance of being approved.
- Pre-approved Loans are available for individuals with high credit scores.
- Increase Credit Limit: You can easily access an increased credit limit with a high credit score.
Regularly and punctually settling your credit card bills will improve your credit score. It will increase the possibility of your loan application approval. Exercising good credit behavior increases your overall credit score. With a high credit score, you can access exciting benefits and opportunities.