Understand Credit Score Before Applying for a Loan

Understand Credit Score Before Applying for a Loan

If you're considering applying for a loan, it's essential to understand your credit score. This is crucial as financial institutions use it to determine whether or not to approve loan applications. A good credit score makes it easy for banks to approve your loan, while a poor score can dash your hopes of securing one.

So, what constitutes a good or bad credit score? BI Checking provides scores based on your ability to apply for loans. The following article explains credit scores and the categories established by BI Checking.

What is a Credit Score?

In essence, a credit score is a system used by banks or financial institutions to gauge an individual's ability to apply for loans or avail of other facilities. Only BI has the capability to calculate credit scores. If you want to know your credit score, you can visit the OJK office. As a general guide, if your credit score is above 720, you're considered safe and comfortable. However, if it's below this, especially below 640, banks will scrutinize your application more closely, possibly leading to more considerations before granting a loan.

Several factors determine whether a bank will grant a loan, including age, marital status, dependents, education level, location, current job position, type of employment, and current workplace.

5 Credit Score Categories According to BI Checking

There are five credit score categories you should know to apply for a loan:

1. Score One (1)
  This category is considered good. It means the borrower always makes loan repayments on time without any delays or defaults. Borrowers with a score of one are assured of getting loans when they reapply.

2. Score Two (2)
  The second category isn't as good as the first. If you fall into this category, it means you've missed repayments for 1-90 days. Banks will pay special attention to borrowers in this category and maintain separate records for those applying for loans.

3. Score Three (3)
  Banks need to be concerned if a borrower falls into the third category. This indicates a borrower with an unsettled credit status, having missed repayments for 91-120 days. Banks will be cautious and hesitant to grant loans, unless the borrower has a clean credit history.

4. Score Four (4)
  Borrowers in this category raise red flags. They are categorized as doubtful debtors, having missed repayments for 121-180 days. After more than three months of default, banks are unlikely to grant loans. It's advisable for borrowers to settle their debts first.

5. Score Five (5)
  If a borrower with a defaulted status applies for a loan, the bank must reject it. Based on their credit history, they shouldn't be allowed to apply for loans anymore. They are blacklisted, and the bank must be firm on this matter.

How to Improve Credit Score

If you find out your credit score is poor, you need to work on improving it. Here are three ways to do so:

1. Actively Use Credit Cards
  You need to think about how to use credit cards wisely. Don't overuse them and only use them when necessary. Not using credit cards at all is also not favorable to banks. Utilize them for purchases at selected merchants and take advantage of credit card promotions. This way, banks will trust you as a responsible credit card user.

2. Pay Bills on Time
  One effective way to improve your credit score is to pay your bills on time. This is a good way to engage with banks positively. If you can pay before the due date, banks will be more willing to improve your credit score.

3. Manage Finances Wisely
  One drawback of using credit cards is overspending, which can lead to difficulties for borrowers. Therefore, the best advice from banks is to manage finances wisely. Banks will likely evaluate borrowers based on their financial management behavior.

Once you understand the concept, categories, and ways to improve your credit score, you can apply for a loan to start your business. If you work in a financial institution, checking the credit scores of potential borrowers is crucial. Use Brick to connect with digital financial services. Utilize Brick's loan service solutions to make the checking process easier and faster. ***

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