When your loan application is rejected, the simple interpretation is that the lender is not sure of your credibility and ability to pay back the loan and interest. It’s not about your height or complexion. Whether that decision is right or does not matter, it is the perception of the lender that becomes your reality in this instance. Whilst a rejection from a lender is not a rejection from all lenders, it is important to make sure that the reason for that lender’s rejection is not generic. If it is, many other lenders, if not all, would also reject your loan application. One of such generic reasons is your credit score.
Your credit score is a 2–3-digit number, ranging from 300 to 850. It is a statistical estimate that you’re your credit history to summarise your creditworthiness. The credit score helps lenders to put borrowers into four different buckets: excellent, good, average, and poor.
So, knowing where you belong is important, as no lender wants to give a loan to a poor borrower and of course, no lender will leave an excellent or good borrower to give a loan to an average borrower, so when rationing their loan approvals, lenders give priority to excellent and good borrowers; it’s a pecking order. The higher the number, the more confident lenders are in granting your loan request.
For lenders, your credit score is an indicator of the risk of giving a loan, so when your credit score is low, lenders consider it very risky to give you a loan. Whilst credit score is not the only criteria that most lenders use, it oftentimes serves as one of the first tools for screening loan applications and pre-qualifying borrowers, as it makes for easy and fast judgement, especially as it is purely scientific and can be automated such that it makes for a fast and quick decision, especially for Fintech lenders with the very lean operations team.
When you keep getting a reject response on your loan applications, it may be important for you to check your credit score here. It’s a self-diagnosis that enables you to evaluate your prospect of getting a loan whenever you need it. You do not have to wait until you need a loan because who knows how urgent your need would be, rather it is better to know your status now and see how best to improve on it.
Good enough, your credit score is not a static number, it changes with time, depending on your actions. So, if you find out your credit score is low, you can work to improve it. For instance, ensuring prompt payment of your loan and meeting all conditions can help to improve your credit score. Observing a cooling period after paying off a loan before you apply for the next one can also be helpful in increasing your credit score.
Beyond just serving as a tool for prequalifying borrowers, some lenders also use your credit score for pricing your loan. So, even when your loan is approved, a higher credit score can help you get a lower interest rate because lenders know that you have a good chance of being offered a loan by many competitors. Therefore, knowing your credit score can be one of your bargaining tools in securing that needed loan.
Do you know your credit score? If not, click here to find out with nairaCompare.ng.