Undoubtedly, your credit score and income both are important for getting a loan if you’re salaried. Usually these two factors are seen separately by the lenders to give out a loan. There are people who think that your income can form a part of your credit score. A higher salary would mean more money at disposal every month to make repayments and that is exactly what lenders want.
When you’re salaried, lenders refer to the commonly used credit scores here, we’re talking about the most commonly used scores. A CIBIL score is considered valid for evaluation of the financial standing specially for a regular job person. It’s significant to understand which lender wants who a credit score and which credit score is considerable to use.
What are Credit Scores?
Typically, credit scores aim to assess the probability of repayment and looking into historical data to read your borrowing behavior well. Everything counts whether you’ve borrowed money in the past or not; length/ tenure of your borrowing, whether you’ve repaid your loans as agreed or not?
Whether you’ve missed your loan payments
How much debt you’re using, including how much you’ve borrowed, and types of debt you’ve used.
Whether there are any public records for bankruptcy or legal judgments against you from a creditor.
Whether you’ve recently applied for loans or not?
- Your Income and Credit
In the process of assessing your credit, lenders would like to know your income level. They ask for your income through their loan application and a low income will affect your loan eligibility. Lenders use your income information in different or by using credit scoring models.
- Debt-to-Income Ratio
Lenders would always be interested to know whether you can afford to pay the loan you’ve taken or not. Under few circumstances, it’s important to note down your ability to repay. The only way to do it is calculate a debt to income ratio. The ratio depicts monthly income compared to the debt payments and the principle payment on the loan you’re interested in. In general, if you’re debt-to-income ratio is decent, then your debts are manageable & that greatly builds your credit position.
- Scoring Models
The scoring model may vary from lender to lender. This is the basis of your loan evaluation different from the traditional credit score. Your earning capacity is one of the primary factors which affect the scoring models. Those scores are customized and vary from one lender to another. Lenders can also seek additional information on a loan application, which is a part of the scoring model.
- Not Enough Income
Your income levels don’t generally affect your credit score directly. However, a low income can surely affect your borrowing capabilities. If you don’t have a good salary to get loan approval, then you can try out several ways to cover up:
- Pay off debts on time to remove or reduce your current debt liabilities. This way, your minimum payments will no longer affect your debt to income ratio.
- Strive hard to increase your income either by finding a better job or or adding a cosigner to your loan application. Once a cosigner is on boarded, his/her income is added up, looking like a guarantee to repay the loan as an assured cosigner.
- Make a larger down payment so that the upcoming EMIs are comparatively smaller.