Personal Loan

How Credit Reports Can Affect Your Personal Loan Process?


When you apply for a personal loan, the lender checks your profile for several factors. One of the most crucial aspects of the personal loan process is your credit score. Your credit score is a 3-digit number between 300 and 900 which reflects your credit profile. Many credit rating bureaus operate in India. They assign you a credit score based on their internal processes. The leading credit bureau in India is TransUnion CIBIL, whose reports are widely used by banks and NBFCs.

This score is a part of your credit report. This report features the entire history of your credit profile. Personal loans, business loans, consumer loans, credit cards, and bank limits all form part of your credit report. Based on your repayment history, usage pattern, and other factors, the bureau assigns you a credit score. Based on this score, your loan application will be accepted or rejected. Such is its role in the personal loan process that most lenders give you a rate of interest based on your credit score.

Read on to learn about how your credit report can impact your personal loan process.

What is a credit report?

Your credit report is created by a credit rating bureau like Equifax or TransUnion CIBIL. This credit report includes your credit score, which is a key aspect of the personal loan process. Most lenders need you to have a CIBIL score of 750 or above. This will allow you to get high loan amounts at low interest rates, along with quick sanctions.

This report features all your past and current credit accounts. It also helps lenders learn about your credit behaviour in the process. Based on how you use the credit and how you repay it, your credit score will change. If you pay your EMIs on time and rely less on credit cards, then your personal loan process will go smoothly. Otherwise, you will have a hard time getting a personal loan from a lender.

What does your credit report reflect?

Your credit reports play a pivotal role in the personal loan process. Why? Well, it offers lenders useful insights into your behaviour as a borrower. Here are some key aspects of your credit profile that lenders can assess through a credit report:

  • Types of loans: Lenders want you to have a balanced mix of various types of credit. This will reflect that you are responsible for credit. But if you rely heavily on one type of credit, like credit cards, it is a red flag. This will mean that you rely heavily on high-interest loans and credit cards. As such, there is a higher risk of default as the interest cost is too high for some loan types. 
  • Current Debt Level: Lenders have a policy wherein they consider around 50% to 80% of your income for EMI payments. The greater your current debt, the less likely you are to be approved for a loan. At any point in time, your FOIR should not be more than 50%. Likewise, your credit card use ratio must also be less than 40% at all points in time. If your current debt-to-income ratio is less than 30%, then your personal loan process will be completed quickly. 
  • Repayment Track: It is vital for every lender to ensure that you can repay your EMIs on time. They judge this ability through your past EMI payment track record. Also, you must pay your credit card bills on time. If there is any cheque bounce or write-off for any of your loan accounts, then you will not be able to get a loan. If there was a bounce at the start of the loan and you have a valid reason for the same, then you may get a loan.

If your credit score is below the minimum level given by the lender, you will not be able to get a loan. In fact, many lenders do not process the loan if the credit score is below 700. Hence, you need to follow some useful steps to improve your credit score.

How to improve your credit score?

Before you apply for a personal loan, here are the steps that you must follow to improve your credit score and speed up the personal loan process:

  • Pay your EMIs on time: You must pay your loan EMIs and credit card bills on time. To avoid any oversight, ensure there is enough balance in your account at least three days before the EMI is due. Always opt for an auto-debit option for credit card bills. Herein, you can select the minimum amount due for auto-debit and then pay more later on in the coming months. 
  • Do not apply for too many loans: You must apply for a loan only with a lender whose criteria you can meet. Too many queries at the same time will lower your credit score. 
  • Avoid credit cards: You must avoid the use of credit cards to pay for your daily costs. This will help you keep your credit card usage low and your credit score high. 

To get a personal loan quickly, you need to have a good credit score of 750 or higher. This will allow you to get the best offers and deals from lenders. The personal loan process will be finished quickly. In fact, if you apply for an online personal loan, you will get instant approval. To get the best deals on your personal loan, visit Piramal Finance. They offer a range of loans to meet any need that you may have. Low rates of interest and long repayment periods make it a suitable lender for you. They also have many articles and blogs to help you better understand your credit report and how to quicken the personal loan process.