A credit score is an significant factor that most lenders/financial institutions consider while sanctioning funds. The CIBIL score usually ranges between 300 and 900; the higher the score, the better your eligibility. A credit score of 550 to 600 is considered low. Therefore, if you have a credit score of 550, it is most likely that lenders/financial institutions will not consider your loan application. Your loan application will only be considered if you meet the eligibility criteria for a personal loan.

What is CIBIL?

CIBIL stands for Credit Information Bureau India Limited and is a Reserve Bank of India (RBI) approved agency. Its primary function is to assess the creditworthiness of borrowers. It is one of India’s most important credit bureaus that assists lenders/financial institutions in the risk assessment of loan applications.

What is CIBIL Score?

A CIBIL score often referred to as a credit score, is a three-digit score that represents a borrower’s capacity to make timely payments on their credit obligations. To calculate the credit score of a loan, the Credit Information Bureau India Limited considers your total debt across all lenders, along with your payment history. This platform determines your creditworthiness in numeric expressions that range between 300 and 900. To be qualified for a personal loan, you must have a minimum credit score of 750 or more. The nearer your score is to 900, the higher are your chances of getting your loan approved.
As mentioned, a CIBIL score is an essential factor that most lenders consider while approving your loan application. Therefore, it is advisable to maintain a minimum CIBIL score when applying for a personal loan. As a borrower, you must meet the minimum threshold of the CIBIL score, i.e., 750, to increase the chances of getting a personal loan with a lower interest rate and multiple other benefits from the lender/financial institution.

What is a Personal Loan?

A personal loan is an unsecured, multipurpose loan with no restriction on its use. This means that you can use the loan amount for any financial need. Most borrowers make the most of this collateral-free loan to meet their financial emergency needs, such as medical contingency, educational expenses, home improvement, weddings, etc.

What are the Eligibility Criteria For A Personal Loan?

Since personal loans are unsecured, most lenders/financial institutions strictly analyze credit history, current financial liabilities, income, employment history, etc., to decide whether to lend you the amount. However, having a good credit score will increase your chances of getting your loan approved immediately.

What is the Minimum CIBIL Score Required to Get a Personal Loan?

Personal loans are easy to acquire as they are unsecured, i.e., a loan that does not need collateral. Also, personal loans can be used for various purposes and have minimum documentation involved. However, one of the most crucial factors to consider while applying for a personal loan is your CIBIL or credit score.

Having a good CIBIL score is essential. Therefore, a credit score of over 750 means you can expect faster approvals for your loan. Let’s look at the table below that will give you a better idea of a good and bad CIBIL score.

Credit Score Good or Bad? Chances of Approval
300-549Very BadImpossible
750 and aboveVery GoodExtremely High

What Factors Are Responsible for A Low Credit Score?

Factors that contribute to a low CIBIL score are:

  • The repayment history forms about 35% of the credit score
  • The credit utilization ratio comprises about 30% of the credit score.
  • The healthy mixture of credits forms 10% of the CIBIL score.
  • Duration of the credit availed forms about 15% of credit score.
  • Credit inquiries form the remaining 10% of the credit rating.

What are the Disadvantages of Applying for a Personal Loan with a Low Credit Score?

If you are applying for a personal loan with a credit score of 550 or below, it is a disadvantage in itself, as with a low credit score comes many other disadvantages. Here are some listed for your reference.

Higher Interest Rates:

Most lenders may charge additional interest rates to borrowers with low credit scores to cover the risk of default.

Limited Loan Options:

A low credit score can limit your loan options or may require subprime loans with higher interest rates.

Difficulty Qualifying for the Loan:

A low credit score may make it difficult to qualify for loans, and lenders might require collateral or a co-signer.

Negative Impact on Your Credit:

If you apply for a personal loan with a low credit score, you may further lower your credit due to multiple inquiries.

Minimal Loan Amount:

Applying for a personal loan with a low credit score may get you a loan with a lower amount than desired. For example, if you apply for a loan of INR 1,00,000, the lender may approve you for a loan of only INR 50,000 due to your low credit score.

How to Improve Your CIBIL Score?

Here’s how you can improve your credit score instantly.

  • 1.
    Pay your credit card bills on time.
  • 2.
    Clear the existing debts beforehand.
  • 3.
    Maintain a credit utilization ratio below 30.
  • 4.
    Avoid applying for multiple credits/loans simultaneously.
  • 5.
    Keep your old account details to ensure your credit history has it all.
  • 6.
    Check your credit report at least twice a year.
  • 7.
    Raise a query immediately if any information on your credit report is incorrect.

How to Check Your CIBIL Score?

Here’s how you can get a free CIBIL report once a year.

  • Step 1: Go to the CIBIL website
  • Step 2: Fill out the form (name, contact number, email address) and click continue
  • Step 3: Fill in additional details such as PAN Number.
  • Step 4: Answer all questions correctly. These questions are about your previous loans, credit cards, etc., based on which your CIBIL score will be calculated, and a credit report will be generated.
  • Step 5: Click download

Getting a personal loan with a low credit score such as 550 or less can be challenging, irrespective of whether you meet the other eligibility criteria. It may also result in a loan rejection or higher rates of interest. Therefore, it is best to adopt good financial habits to improve your overall score and eligibility.