Reviewed by: Fibe Research Team
What is credit control and why does it matter when you apply for a loan? Simply put, credit control meaning refers to how lenders decide who gets credit, how much and on what terms. It helps banks and NBFCs avoid lending to risky applicants.
If your credit score is low or you’ve missed EMIs, you might face rejection or higher interest rates. The good news? You can fix this. Pay your dues on time, keep credit use low and build a steady repayment record.
So, read on to explore how lenders use this system, what factors affect it and how it impacts your credit journey.
In simple terms, it refers to the policies and practices that financial institutions have to manage and mitigate their risk of lending. Effective implementation of credit control allows lenders to lower the risk of non-payment or default, which will help them manage their cash flow.
Credit control means setting up systems to manage and limit risk while giving credit. Here’s how the process usually works:
It’s not just lenders, even businesses use credit control. They do this to ensure they get paid on time and protect their cash flow.
Now that you know the meaning of credit control, here are its types:
This is the primary process of credit control, as it involves evaluating the borrower’s creditworthiness based on the past credit behaviour. This can include:
Another type of control is defining the terms for lending, such as deciding on a comfortable, affordable interest rate, penalty amount and payment date. This step is important to maintain transparency and facilitate on-time payments from the borrower.
With this type of control, lenders can report any delinquencies, delays and defaults by the borrower. This allows them to effectively manage the risk and take the appropriate steps to avoid financial loss.
This is an essential component involving strategies to recover the loan amount. For example, if the borrower is unable to pay the EMI due to unforeseeable circumstances, lenders can negotiate and adjust the repayment structure. They can also appoint collection agencies to recover the amount. Lenders may even pursue legal actions for this.
This type of control is ideal for protecting lenders against default arising due to bankruptcy, loss of job, health issues, insolvency or other reasons. With this, they can minimise their loss and maintain cash flow.
In addition to mitigating the risk of lending, the objectives of credit control involve:
Also Check: How To Get 1 Lakh Personal Loan
Although there are many benefits, there are some limitations of credit control. With its implementation, financial institutions may face:
Armed with this information, you can better understand your borrowings. It also enables you to make an informed decision and choose the ideal financing option. If you are looking for affordable and instant funds, you can rely on the Fibe’s Personal Loan.
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This strategy involves 5 types of control:
This is a systematic process followed by the lender to manage their lending. It includes evaluating the borrower’s credit profile, setting credit limit, monitoring credit use, tracking repayment and reviewing the account.