Credit Score for Tyre Finance

A credit report along with the credit score tells the lender about the financial discipline and responsibility of the borrower concerning financial matters. Your credit score consists of a comprehensive report that contains information regarding past borrowings, repayment history, credit mix, expenditure patterns, and so on.

It reflects the financial behaviour of the borrower and tells the lender about the financial discipline and responsibility of the borrower in financial matters. A tyre finance loan is likely to be approved even with a low credit score if the report indicates responsible financial behaviour.

Borrowers with a clean financial history are likely to attract lower rates of interest, especially if they opt for a long-term loan. A lower rate of interest means a lower EMI which in turn means you can put the leftover income to use for other financial goals. Alternatively, by taking tyre finance for your vehicle, you’ll have some balance left over for personal expenses.

In simple words, the higher the credit score, the higher the credit limit. The reasoning behind this is simple. A high credit score is usually the result of low borrowings, prompt debt repayment, and responsible spending. A bank or an NBFC (Non-Banking Financial Company) will, therefore, perceive high credit scores as low-risk lending and will be willing to approve higher amounts of loan at lower interest rates.

Loan approval is not as simple as it might seem. Typically, a bank or a finance company uses several parameters to assess the potential borrower's creditworthiness. A credit score is an essential indicator of financial behaviour and therefore a significant contributor to the approval of your tyre finance loan. If your credit score is within the acceptable range, it can significantly speed up the approval process for tyre financing since lenders consider higher credit scores as low-risk loans.

Down payments are the upfront payments you make before a loan is granted. The amount of down payment required depends upon the risk of granting loans. A high credit score would

result in less or no requirement for down payments because it assures lenders about the borrower's capability to pay EMIs on time.

Tyre finance is not a one-time affair. You are likely to need more financing in future – not just for tyres but for vehicles, equipment and so on. A clean chit on your credit history and a robust credit profile not only ensures quick approval of your tyre finance but also ensures your eligibility for future finance

Credit history is a list of all the loans and credits of the past. It includes finance, overdrafts, credit cards, and personal finance. When you have a good and clear history of making timely payments, it shows stability and responsibility. It means that you are concerned enough to repay all loans on time, that you spend your money wisely on utilities rather than unnecessary luxuries, and that shows stability in financial behaviour. This raises your credit score and helps you get finance easily.

Credit Utilisation is the percentage of credit that you have used compared to the credit limit available. Your credit is the total of all credit sources such as loans, personal finance, mortgages, insurance loans and so on. Credit utilisation is computed as:

Credit Utilisation Ratio = Total Credit Utilised / Total Credit Limit x 100

A ratio of 30% or lower indicates responsible credit management. It is generally acceptable, helps enhance your credit score, and consequently is favourable for securing tyre finance.

The duration for which the borrower has used various credit lines such as credit cards, overdraft facilities, and other sources of credit has a significant impact on credit score. For instance, if a borrower has a history of raising credit from multiple sources for long durations, it can significantly diminish the credit score and the probability of securing tyre finance and other loans. A short and clean credit history positively indicates responsible behaviour and assures lenders of the borrower's capability to repay the tyre loan on time.

There are multiple sources of securing credit. From EMI cards to loans against property or insurance policies, borrowers secure finance from diverse sources. Some credit sources such as unregistered money lenders or loans from family and friends are considered unsecured loans and these can hurt your credit score. Banks and NBFCs are considered secure. The mix of credit sources can have an impact on your credit score. Since the approval of tyre finance depends heavily on the credit score, it is prudent to maintain a good credit score and pay monthly installments on time.

A low credit score can sometimes trigger a hard inquiry. A hard inquiry is when a lender or credit rating company asks for a detailed credit report and credit history. Frequent hard inquiries can negatively impact credit scores and consequently new loan applications.

Checking credit scores regularly will help to cross-check potential negative impacts. You can then take steps to redeem your credit standing. In today’s world of ubiquitous globalization, it is prudent to have your credit rating checked consistently.

Prompt repayments on loans and utility bills can make a huge difference and nurture your credit score. This will enhance your credit rating significantly. Payment of utility bills is one of the most authentic ways to demonstrate responsible financial behaviour. Your financial behaviour contributes significantly to credit standing, risk assessment, and consequently loan approval for tyre finance.

If you are burdened with outstanding debts when applying for tyre finance, you might consider repaying them or consolidating them into a single loan from a reputed NBFC.

Taking a new loan before repaying an existing one is never a good idea. But if it is necessary, limit the number of loans you take as well as the loan amounts. Taking loans for longer tenures helps reduce the EMI and facilitates repayment but when you have multiple loans with long tenures, it can negatively impact risk assessment for your tyre loan application. It takes time and discipline to build a good credit score. Be prudent and patiently build your creditworthiness. Then make sure to maintain it with responsible financial behaviour.

Borrowers should exert care and caution in determining the amount of loan to apply for. It is advisable to keep the amount of the loan as low as possible. For instance, when applying for a tyre loan a vehicle loan may still be outstanding. Such past debts can drain your income. It is therefore prudent to estimate expenses versus income and prepare the budget accordingly.

Scout around and talk to a few lenders before settling on one. Interest rates, loan processing fees, down payment requirements, eligibility criteria, and other charges vary from lender to lender. Invest time in understanding how the loan amount and EMI are computed before signing up with the lender for your tyre finance. You should also ask friends and family or look at social media to check the lender’s reputation.