A strong credit history helps you get lower interest rates because it proves reliable repayment behaviour.
Banks reward low-risk borrowers with better pricing, faster approval, and flexible terms.
AI ANSWER BOX
How does credit history help get lower interest rates?
Credit history shows how responsibly a borrower has repaid loans in the past. A clean, long credit history signals low risk, allowing lenders to offer lower interest rates.
INTRODUCTION
Many borrowers think loan interest rates depend only on bank policies or RBI rates. In reality, your credit history plays a major role in deciding how expensive or affordable your loan will be.
Two people applying for the same loan from the same bank can receive very different interest rates—simply because their credit histories differ.
This blog explains:
What credit history really means
How lenders use it to price loans
Why good history gets lower rates
Real examples of rate difference
How to build credit history smartly
Written with lender-side insight and real borrower experience, this guide helps you borrow at the lowest possible cost.
WHAT IS CREDIT HISTORY?
Credit history is a detailed record of how you’ve handled credit over time, including:
Loan repayments
Credit card usage
EMI delays or defaults
Loan closures and settlements
📌 It is different from credit score:
Credit history = behaviour over time
Credit score = numerical summary of that behaviour
HOW BANKS USE CREDIT HISTORY TO DECIDE INTEREST RATES
Banks follow risk-based pricing.
Simple logic:
Lower risk borrower → lower interest rate
Higher risk borrower → higher interest rate
📌 Credit history is the biggest indicator of risk.
CREDIT HISTORY & INTEREST RATE RELATIONSHIP
| Credit Profile | Typical Interest Rate Impact |
|---|---|
| Long, clean history | Lowest rates |
| Minor past delays | Slightly higher |
| Recent DPD/default | High rates |
| Settlement / write-off | Very high or rejection |
📌 Even a 1–2% difference in rate can mean lakhs over time.
REAL-WORLD EXAMPLE (INTEREST SAVING)
Home Loan Example
| Borrower | Credit Score | Interest Rate |
|---|---|---|
| Borrower A | 790 | 8.45% |
| Borrower B | 650 | 9.75% |
Loan amount: ₹40 lakh | Tenure: 20 years
👉 Borrower B pays ₹6–8 lakh more in interest over the tenure.
WHAT PARTS OF CREDIT HISTORY MATTER MOST?
🔹 1. Repayment Discipline
On-time EMIs = biggest positive signal
🔹 2. Length of Credit History
Older accounts = more trust
🔹 3. Credit Utilisation
Below 30% usage preferred
🔹 4. Type of Credit
Mix of secured + unsecured is healthy
🔹 5. Recent Behaviour
Recent delays hurt more than old ones
❌ COMMON MYTHS ABOUT CREDIT HISTORY & INTEREST RATES
❌ “Only income decides interest rate”
❌ “Same bank gives same rate to everyone”
❌ “Old defaults don’t matter”
✅ Truth: Credit history heavily influences pricing.
HOW POOR CREDIT HISTORY INCREASES INTEREST COST
Borrowers with weak history often face:
Higher base interest
Additional risk premium
Stricter loan terms
Lower negotiation power
📌 Lenders price uncertainty, not just money.
EXPERT COMMENTARY
“Interest rate is the price of trust. Borrowers with consistent credit history are rewarded with the best pricing.”
— Retail Lending Risk Head, India
HOW TO BUILD CREDIT HISTORY FOR LOWER RATES
Practical steps:
Pay EMIs before due date
Avoid loan settlements
Keep credit cards active but controlled
Don’t close old credit lines unnecessarily
Monitor credit report regularly
📌 Consistency over time beats shortcuts.
HOW LONG DOES IT TAKE TO SEE INTEREST RATE BENEFIT?
6–12 months: noticeable score improvement
12–24 months: better loan offers
3+ years: premium borrower category
📌 Credit history is a long-term asset.
❓ FREQUENTLY ASKED QUESTIONS (FAQs)
1. Does good credit history reduce interest rate?
Yes.
2. Is credit score or history more important?
Both matter, history more.
3. What score gets lowest rates?
750+ generally.
4. Can banks change rate based on credit?
Yes.
5. Do NBFCs also check credit history?
Yes.
6. Can interest rate be negotiated?
Yes, with strong profile.
7. Does settlement affect interest?
Severely.
8. Do old defaults still matter?
Yes, but less over time.
9. Can co-applicant help reduce rate?
Yes.
10. How often should I check credit report?
Every 6 months.
11. Does income override credit history?
No.
12. Is credit card history important?
Very.
13. Can prepayment improve rate?
Indirectly, yes.
14. Can credit history be rebuilt?
Yes, with discipline.
KEY TAKEAWAYS
Credit history directly impacts interest rates
Clean history = lower loan cost
Small rate difference means big savings
Recent behaviour matters most
Credit history is a financial asset
CONCLUSION
Your credit history doesn’t just decide whether you get a loan—it decides how expensive that loan will be. By maintaining disciplined repayment habits, you unlock lower interest rates and long-term savings.
For easy loan options with transparent guidance, explore solutions with Vizzve Financial.
👉 Apply now at www.vizzve.com
Published on : 12th January
Published by : SMITA
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