Credit Rating is an assessment of the borrower (be it a group or company) by a registered credit rating agency that determines whether the borrower will be able to pay the loan back on time, as per the loan agreement.
Needless to say, a good credit rating depicts a good history of paying loans on time in the past. This credit rating influences the bank’s decision of approving loan applications at competitive interest rates. Let us know about credit rating in detail.
Importance of Credit Rating
Here are the benefits of credit rating for money lenders and borrowers:
- Better Investment Decision: No bank or money lending companies would like to give money to a risky customer. With credit rating, they get an idea about the creditworthiness of a company (that is borrowing the money) and the risk factor attached with them. By evaluating this, they can make a better investment decision.
- Safety Assured: High credit rating means an assurance about the safety of money and that it will be paid back with interest on time.
- Easy Loan Approval: With a high credit rating, you will be seen as a low/no risk customer. Therefore, banks will approve your loan application easily.
- Competitive Rate of Interest: You must be aware of the fact that every bank offers loans in a particular range of interest rates. One of the major factors that determine the rate of interest on the loan you take is your credit history. Higher the credit rating, lower the rate of interest.