CIBIL Score for Personal Loan

July 12, 2022


CIBIL stands for Credit Information Bureau Limited (CIBIL). It is one of the most popular credit information companies licensed by the Reserve Bank of India (RBI). The company maintains credit information on 600 million individuals and 32 million businesses in the country. It grants a CIBIL score to individuals, a three-digit numeric summary derived after assessing their credit history. The lender will review the CIBIL score for a personal loan to examine the applicant’s creditworthiness.

The CIBIL score is one of the major determinants for the approval or rejection of a personal loan. This is due to the unsecured nature of the personal loan, as such loans are granted to the borrowers in the absence of collateral. The lender has to ensure financial stability before disbursing the amount. The applicant must have an acceptable CIBIL score for their loan application approval.

What is an Ideal CIBIL Score for a Personal loan?

The CIBIL score is calculated based on the credit behavior of the individual and generally

ranges between 300 to 900. The closer the score is to 900, the better in terms of the personal loan.

According to the CIBIL data, 80% of the loan applications are approved by the lender if their CIBIL score is 750 and above.

A healthy CIBIL score for a personal loan is required to substantiate that the borrower will honor the repayments. Lenders need to evaluate the applicant’s credit score to assess the potential risk of default. The high score establishes that the applicant has been diligent in repaying the credit cards and EMIs repayments.

Get a Personal Loan for CIBIL Score Less than 550

The chances of approval diminish when the applicant’s CIBIL score for a personal loan is less than 550. A low CIBIL score stipulates an unacceptable financial standing. This, in turn, increases the chances of default from the borrowers’ end. However, some lenders grant personal loans irrespective of the applicant’s credit score. But the interest rates levied on the borrower are substantially high. The borrower shall meticulously assess the terms and conditions before availing of such loans.

Factors That Influence CIBIL Score for a Personal Loan

Find below the following factors that positively or negatively impact the CIBIL score for a personal loan applicant.

Credit History

The credit payment record of the individual determines the CIBIL score by 35%. In case the individual has showcased punctuality in the past regarding the payments, it would positively impact their CIBIL Score. Payments issues, such as foreclosures, delayed payments, bankruptcy, and collections, can negatively impact your CIBIL score. A negative credit score can make it nearly impossible for the application to get accepted if it requires a good credit score.

Magnitude of Debts

An individual’s debt level influences the credit score by up to 30%. Credit scoring calculations such as FICO look 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 utilization), the number of debts an individual carries, and the relation between loan balances and the loan amount.

As per the guidelines, credit utilization is determined at 30% or less. It is to be noted that heavy balances or too many loans can result in low CIBIL scores. But, the CIBIL score can improve as soon as you clear all the debts.

Age of Credit History

The credit history of the applicant dictates 15% of the credit score. Both the oldest and the average age of all the accounts are considered. 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 choosing a new account can lower the credit history age. Hence, it is recommended to not open multiple accounts in one go.

Types of Credit on Reports

There are two types of Credit accounts that affect the CIBIL Score for a personal loan

  • Revolving Accounts
  • Installment Accounts

Having the two accounts indicates that you have experience handling various credits, and it is also good for your overall credit score.

Impression of a Credit Score on the Personal Loan Approval

The applicant’s CIBIL score for a personal loan plays a significant role in the approval. The CIBIL score of an applicant showcases the creditworthiness of the borrower. Let’s examine how the credit score influences the approval process for a loan.

Financial Health

The lenders assess the financial health of the applicant by assessing them on parameters such as

  • Salary
  • Employment History
  • Diligence in Past loan Repayments

The applicant is expected to have a CIBIL score of 750 before applying for a personal loan.

Repayment History

The record of the repayment of credit is another crucial criterion that banks evaluate before granting the loan. A punctual repayment history reflects in the applicant’s credit score, which ultimately improves the chances of approval for the personal loan.

Re-evaluation of the Credit Report

Even in spotless credit reports, errors can pave the way and ruin a good credit score. The applicant can avail of the assistance of experts for the re-examination of the credit report before applying.

Factors to Consider Before Loan Application

Personal Loans are availed at an exponential rate throughout India. The loans are granted for numerous reasons, such as:

  • Renovating Houses
  • Educational Assitance
  • Consolidate existing Debts

Find below the various factors to be considered before an individual commences their application process for a personal loan:

Interest Rate

The interest levied on the loan is subject to varying factors, such as the Applicant’s

  1. Profile
  2. Credit Score
  3. And the repayment tenure is determined.

The interest rate also varies from bank to bank. So it is necessary for an individual to meticulously assess and research the market before selecting an option that complements the repayment budget of the applicant.

Repayment Tenure for the Personal Loan

Financial institutions follow their own set of guidelines regarding the repayment tenure offered. However, the institutions offer flexible repayment options with varying tenure to cater to the needs of a diverse set of customers. The applicant won’t have to pay high EMIs on the loan if they opt for a longer tenure. But to avail the affordability, the borrower must have an acceptable CIBIL score.

Processing Charges

The borrower shouldn’t fail to factor in the processing charges levied by the bank on the loan amount. In some cases, lenders even ask for prepayment charges. The borrower should be aware of such expenses and factor them in earlier to avoid any last-minute confusion.

Awareness of the CIBIL Score

The borrower should be acquainted with their CIBIL score before applying for a personal loan. The applicant’s credit history carries lots of significance in determining the borrower’s creditworthiness. The applicant should check the CIBIL score to be fully prepared for the assessment as they can take steps to better their CIBIL score to avail of the best possible terms on the loan.

  • Get a Free CIBIL Report
  • You can conveniently access your CIBIL report from their official website. CIBIL score dictates whether the application will be accepted or rejected and the deals on loan. If you want another report, you can get it for a duration ranging from a month, half a year, or a year.

Compare Lenders

The lenders set up their requirements and offer on the loan amounts. The interest rates, processing fees, and tenure vary from one credit institution to another. The applicant must compare and evaluate the lenders and select the one which aligns with their goals.

In Case You Don’t Have a Good CIBIL score for a Personal Loan.

The credit score signifies the creditworthiness of the applicant. The lenders assess various factors such as the repayment history, type of credit, and income stability to derive the credit score. If the applicant doesn’t have a CIBIL score, the lenders evaluate other factors to understand the financial condition of the applicant.

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 you access to various credit products. You can start working on your credit history in the following ways:

  • Apply for a secured credit card to be issued against a fixed deposit. You can use the card for payments to establish your credit history.
  • Most companies have partnerships with financial institutions. If the company you are working for has a relationship with one of the banks, you will most likely get approval from that bank.

It is to be noted that lenders analyze other factors too while deciding to approve or reject a loan application. The CIBIL is not the sole determinant of the decision. However, a CIBIL score substantiates the repayment viability of the applicant.

How can an Applicant Improve their CIBIL Score for a Personal Loan?

The applicant can accentuate their CIBIL score by employing the following measures:

Showcase Discipline with Credit

The repayment history of the past or existing debt directly affects an individual’s credit score. Suppose the individual showcases discipline on repayments such as EMIs. The credit score of the applicant can improve. They can even set reminders for repayments to diminish the chances of defaulting on the debts.

Maintain Credit Card History

The applicant should ensure the continuance of older credit cards to lengthen their credit history. It is to be noted that payments on credit cards should be punctual to highlight the applicant’s sincerity on repayments.

Opt for Longer Repayment Tenure

A longer tenure is beneficial regarding the CIBIL score for a personal loan. A longer repayment term diminishes the borrowers’ chances to default as the EMI amounts are reduced.

Credit Utilisation Ratio

The better an individual can regulate credit usage concerning the allotted limit, the better it is for their CIBIL score for a personal loan. An individual can customize their credit limit based on their expenses.

Credit Report Analysis

It is important to analyze the credit card report to increase the credit scores. Rectify the mistakes if there are any on the report. Sometimes it happens that the payment has been made, but it does not reflect on your credit reports.

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Frequently Asked Questions

What is the minimum CIBIL score for a personal loan?

The applicant must maintain a minimum CIBIL score of 720 to 750 for a personal loan. This score signifies the creditworthiness of the applicant. Lenders even offer attractive interest rates to such applicants

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

The CIBIL score of 650 is considered decent. The applicant can better their loan application by assigning a guarantor with a healthy credit rating to fasten the application process.

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, customising 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 applicant's creditworthiness before accepting the application.

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

It is advisable to take some time to improve your CIBIL score before applying for the loan. Even if the need for a personal loan is immediate, the chances of getting your application rejected are high. The lender would levy a higher interest rate in case of approval.

Tushar Gautam is a content writer inclined to enlighten his readers about the world of finance through Urban Money.

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