InvestorQ : What does my credit score have to do with my loan getting sanctioned?
riya Ranade made post

What does my credit score have to do with my loan getting sanctioned?

Anusha Savla answered.
3 years ago
This is a very good question. Before getting to answer this, let’s deal with a hypothetical case first.
Let’s say you have two close friends- Riya and Deepak. Both work in high-paying jobs and have been friends with you since you were in school.
Riya approaches you and asks you to lend her some lumpsum amount as she wants to make the down payment for a house. Around the same time, Deepak approaches you for a loan as he wants to purchase the latest iPhone in the market.
Although one could argue how important/unimportant both the end uses are, fact is your lending decision will be based on:
- Your ability to lend the amount asked
- How reliable you think your borrower (Riya/Deepak) is
In this hypothetical case, you would lend your money to the friend who you think is more likely to repay you and that too in time, and preferably without you having to remind the person day in and day out.
Now, banks work in a similar manner. They face loan requests from a number of people like Riya and Deepak, and they have to decide between hundreds of borrowers. A credit score then comes handy as it is a reflection of the repayment ability and the repayment discipline a potential borrower has.
This is why banks and non-banking finance companies (NBFCs) give so much importance to credit score and credit reports, because after seeing a borrower’s score will the bank/non-banking finance company decide whether to give him/her a loan or not.