CIBIL Score for Personal Loan

January 03, 2022

Wondering why a CIBIL score is important for availing a personal loan?

Do you have a low CIBIL score and are worried that your application might get rejected?
If yes, keep on reading!

CIBIL score is associated with an entity’s creditworthiness. When you apply for a personal loan, lenders will look at your CIBIL score to review your financial standing. CIBIL score for a personal loan is significant as it is one of the contributing factors in the application approval or rejection process. Apart from the eligibility criteria and required documents, you will also need to fulfil the criteria of a good CIBIL score.

You can also get a personal loan with a low CIBIL score. Even if you get a personal loan with low CIBIL score, you will not get the best deals on the loan and will have to pay high-interest rates in shorter repayment tenure.

Personal loans can be used for a number of reasons, such as higher education, marriages, shifting homes, etc. Availing a personal loan is a good idea if you lack funding in any situation. Before knowing about the CIBIL score for a personal loan, let’s make you know what personal loan is all about.

What Is a Personal Loan?

A personal loan is an unsecured loan that an individual borrows from financial institutions to fulfil their personal needs. This loan is given on the basis of the applicant’s profile, income, CIBIL score for a personal loan, employment history, etc.

Since the personal loan is a collateral-free loan, the lender has nothing to auction anything in case of any default. Interest rates on this loan are higher than any other loan, such as loans against property, gold loans, etc.

The applicant can use this loan for fulfilling any personal needs. The bank has no right to monitor the amount lent to the borrower.

What is a CIBIL Score?

CIBIL Score refers to the Credit Information Bureau India Limited Score. Also known as a credit score, it is one of the most famous credit importation companies in India. This company is licensed by the Reserve Bank of India (RBI). The other three credit information companies are Equifax, Highmark, and Experian.

CIBIL Score refers to the three-digit average score of credit history, report and rating. The CIBIL score ranges from 300 to 900. If your credit score is above 700, i.e., closer to 900, the better the credit rating will be. This score plays an important role in the loan application process. The CIBIL score is like the first impression that you show to the lender. The closer your CIBIL score is to 900, the higher the chances of your loan being approved will be.

Why do Lenders seek CIBIL Score for Personal Loan?

Lenders analyse the creditworthiness of the borrower through their CIBIL score for personal loan. This indicates whether the borrower can pay back the loan or is a risky borrower. The score also plays its part in deciding the interest rate and repayment tenure for the loan. If the borrower has a low credit score, then the chances of loan application rejection are high, loan and vice versa. The loan amount is also based upon the CIBIL score. Even if the application is accepted for a low CIBIL score loan, the lender will charge a high interest rate from the borrower.

What Should Be the CIBIL Score for Personal Loan?

The CIBIL/Credit score has a range of 300 to 900. Keeping your credit score closer to 900 helps in getting better agreements for both credit cards and loans. Most lending institutions believe that a credit score of 700 and above is a good CIBIL score for personal loan. A low CIBIL score can not help you in getting a personal loan, but you can easily get a personal loan with a CIBIL score of 700 or above. As per the data of Economic Times, about 80% of the loans are approved if the credit score is 700 or above.

Factors That Affect CIBIL Score for Personal Loan

Building and protecting CIBIL scores is now more important than before and handling the five factors mentioned below will help determine your CIBIL score :

1. History of Bill Payments

35% of the CIBIL score is determined by the bill payment history of an individual. Not only that, but the timely payment history also makes a great difference in your CIBIL score. Payments issues, such as foreclosures, delayed payments, bankruptcy, collections can impact your CIBIL score negatively. The negative credit score can make it nearly impossible for the application to get accepted if it requires a good credit score.

2. The Level of Debts

30% of credit score is based upon the level of debts of an individual. Credit scoring calculations, such as the score of FICO, looks over a few significant factors for determining the credit score. These factors include credit limit by the ratio of the credit card balances used (also known as credit utilisation), the number of debts that you carry, and the relation between your loan balances and the availed loan amount.

The guidelines suggest keeping the credit utilisation to 30% or less. Also, heavy balances or too many loans can lead to low CIBIL scores. But in a glad tiding, the CIBIL score can improve as soon as you clear all the debts.

3. Age of Credit History

The credit history age determines 15% of the credit score. This considers both the oldest credit account and the average age of all your accounts. An older credit history age is a bonus for your credit score. The older the credit history, the more experience it shows in handling the credits. Closing the existing accounts or opting to choose a new account can lower the credit history age. Hence, it is recommended to not open multiple accounts in one go.

4. Types of Credit on Reports

Revolving account and instalment account – are the two types of credit accounts. Having the two account syndicates that you have the experience in handling various credits and is good for your credit score.

4 Surprising Ways your Credit Score Impacts the Loan

CIBIL loan for personal loan plays a significant role in the approval process of the application. It is because it shows how dependable or a risky borrower you are. In this section, check how the credit score impacts your loan.

  • Financial Standing: Along with all the other details, such as salary, employment history, past loans, eligibility factors, and documents, CIBIL score for personal loan is also important. Make sure that the CIBIL score is between 700 and 900.
  • No Credit or Low Credit Loan: It is possible for the application to be accepted on a personal loan for low CIBIL score, but be prepared as you will be asked to pay a high rate of interest on the loan amount. The lending institutions will take longer loan processing time and will take the extra steps for additional checks. The lending institutions will not provide you with the best deals on a low CIBIL loan.
  • Matters of the Past: The repayment history of the applicant is another crucial parameter in the personal loan application process. The lending institutions find it by checking the credit scores of the applicants. A good repayment history will determine a good CIBIL score for personal loan.
  • Error-Free Report of Credit: Even in spotless credit reports, the errors can pave their way and mutilate your good credit score. Make sure you check the credit report or take the help of experts for the credit report before submitting it for the loan application. Avoid trouble for your personal loan approval as much as possible.

Things to Consider Before Applying for a Loan

Personal loans have become one of the most availed forms of loans in India. It can help in a number of things, such as for the purpose of shifting houses, marriages, education, and more. As this loan is beneficial for an individual, there are a few factors that one needs to check upon. Below-mentioned are a few things that you should consider before applying for a personal loan.

  • Interest Rate: The interest rate charged by the lenders will vary on a number of factors, such as the profile of the applicant, the credit score of the applicant, amount, repayment tenure, etc. It will also vary from one lending institution to another. When you are going to avail a personal loan, make sure you choose the right and affordable offer on the loan.
  • Repayment Tenure for the Personal Loan: Each financial institution has its own set of rules and requirements for repayment tenure. But most financial institutions will offer flexible repayment tenure to the borrowers. Opting for longer repayment tenure will make the EMIs smaller. This will increase the affordability of your personal loan. But this is not possible in the case of a low CIBIL loan.
  • Processing and Other Charges: Borrowers often forget the amount that they will be charged on the loan amount, such as the processing fees and the other charges. Some lenders might ask for several charges like the prepayment charges and others. So it is better to find out the other charges that they might ask for. This will help in avoiding any last minute confusion and stop coming in the way of affecting the loan repayment abilities.
  • Check Your CIBIL Score: As a borrower, it is important to go through the credit health before applying for a personal loan. Credit history is important for the lending institutions as it defines the creditworthiness of the borrower. Check your credit scores in advance. If you have a low CIBIL score loan, take time and try to bring it to a good spot for availing best deals on the personal loan.
  • Get Free CIBIL Report: On the official website of CIBIL, you can get your free CIBIL report if you didn’t get it this year. CIBIL score for personal loan will direct whether the application will be accepted, rejected and the deals on the loan. If you want to get it again, you can buy it for a month, half a year or a year.
  • Compare Lenders: Every lending institution has its own requirements and offers. In order to find the right lender that matches your needs, compare the offers and requirements of various lenders and choose the right one.

Incase You Don’t Have a CIBIL score for Personal Loan

CIBIL score defines your credit status. After analysing the various factors (repayment history, credit history, type of credit, etc.), the CIBIL score is calculated. If you have a long credit history, it will help the lender to make quick and sound decisions about your loan application. In case you don’t have a CIBIL score, the lenders will check the other factors, such as the eligibility criteria to evaluate the creditworthiness.

Even though you can get a loan without a CIBIL score or a low CIBIL score loan, having a credit score can make it better by giving access to various credit products. You can start working on your credit history in the ways mentioned below:

  • Apply for a secured credit card. It should be issued against a fixed deposit. This card can be used in a similar way to credit cards. You can build up your credit history by paying through this card.
  • Most of the companies have partnerships with financial institutions. If the company you are working for has a relationship with one of the banks, then you are most likely to get approval from that bank.

The lenders will also analyse several other factors in the personal loan application while approving or rejecting it. A good CIBIL score for personal loan is not the sole factor for availing it. A CIBIL score is just a medium that stands between you and the lending institution while availing the loan.

Factors That Help in Improving CIBIL Score Range for Personal Loan

  • Credit Report Analysis: It is important to analyse the credit card report in order to increase the credit scores. Rectify the mistakes if there are any on the report. Sometimes it happens that the payment has been done, but it does not reflect on your credit reports.
  • Maintaining a Good Bank Balance: Good amount of balance in your bank account will determine your capacity to pay back the loan amount. It also helps in getting the loan application approved quicker.
  • Increase the Credit Card Limit: Increase the limit of your credit card if you own one that has lower limits than your actual eligibility. But make sure that you maintain the expenditure limit.
  • Opt for Longer Repayment Tenure: A longer tenure is beneficial in terms of the CIBIL score for personal loan. A longer repayment period will reduce the EMI and you will be able to pay the loan amount back without any default.
  • Choose a Good Income Source: A good income source shows that you are capable of repaying the loan amount. When you want to avail a low CIBIL score loan, a stable income source will prove to be a positive factor for your application.
  • The Right Guarantor: The guarantor you are deciding should have a good CIBIL score as it will put a positive impact on your personal loan application.
  • Regular Payments of Bills: Try to pay all your bills, debts and taxes on time. Making payments on time increases your chances of building a good CIBIL score.

Frequently Asked Questions (FAQ’s)

What is the minimum CIBIL score for a personal loan?

If you want to avail a personal loan, your minimum CIBIL score for a loan which is believed to be a good score should be 700. This proves to the lenders that you are creditworthy and will help in faster approval of the application.

Can I get a personal loan if my CIBIL score is 650?

You can apply for a low CIBIL score loan, but this is not guaranteed that your application will be approved or not. In some cases, the application can be rejected or a high rate of interest will be imposed on the borrower.

Can I get a personal loan if my CIBIL score is 600?

The chances of application rejection are high, or the lender may impose high-interest rates on you if you apply for a personal loan in case your CIBIL score is 600.

What is the good CIBIL score for a personal loan?

A credit score between 720 and 750 is considered to be a good CIBIL score for a personal loan. If an applicant has a good CIBIL score the chances of his application getting accepted are high as the score proves the creditworthiness and repaying capacity of the applicant.

How can I raise my credit score fast?

The few ways in which you can raise your credit score fast are paying credit card bills on time, limited utilisation of credits, keeping an eye on your credit report, opting for various types of credits, opting for new credit cards, increasing limits of credit, keeping old debts on credit reports.

How can I make my CIBIL strong for a personal loan?

A few ways in which you can make your CIBIL score strong are following a discipline with credits, making payments on time, maintaining old credit cards for longer credit history, customizing credit limits, opting for longer repayment tenure for loans, avoiding taking too much debt in one go, check credit reports for rectifying the mistakes, choosing various kinds of credits can help you in CIBIL scores.

Can I apply for a personal loan without having a CIBIL score?

Without a CIBIL loan, it will not be possible for you to avail a personal loan. Personal loans are unsecured loans, so the lender has to check the creditworthiness of the applicant before accepting the application.

How to apply for a personal loan if I have a low CIBIL score?

Before applying for a personal loan on a low CIBIL score, try to take some time and try to make your CIBIL score. If the personal loan is important, then file for the loan but your application might get rejected or a high rate of interest will be charged from you.

Can I get a personal loan for a CIBIL score of 550?

It is nearly impossible for the application to be accepted by the lender if your CIBIL score is 550. In some cases, the application might be accepted, but a high-interest rate will be imposed on you.

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Category:Personal Loan

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