When you contact a bank or financial firm for a personal loan, they first check your credit score. Your credit score, also known as your CIBIL score, is your credit record that covers the line of debt you have, your capacity to repay, and so on.
The CIBIL score for a personal loan is a number that shows how careful you are with debt, such as credit card bills and loans. This score defines your credibility. It assists lenders in determining how much money a lender may give you and at what interest rate.
Banks may refuse loan applications if the credit score is poor, or demand a higher interest rate. While having a strong CIBIL score for personal loans is the greatest indicator, you may still get a personal loan if your credit score is between 600 and 700.
What Role Does The Credit Score Play in Personal Loans?
Credit bureaus generate the credit score as part of the overall credit report. The credit score reflects past credit card data, such as loan repayment habits, loans taken, defaults, etc. This assists lenders in evaluating the borrower’s credit and monetary ability to repay future loans, sparing them from dangerous debtors who may default.
As a result, the credit rating is a vital piece of the recent budget. A good credit score ensures a lender of your creditworthiness and financial prudence. On the other hand, a low credit score makes a lender concerned about your ability to repay bills on time, placing you in the high-risk category. This might result in your loan being denied.
What is The Perfect CIBIL score For a Personal Loan?
The CIBIL score for personal loans is a widely accepted sign of your fiscal status. It’s a numerical analysis of your financial status. It provides lenders with specific factors to judge how you handled previous loans and if you can repay the debt if the personal loan is granted to you.
A credit score is deemed great if it is between 750 and 900, with 900 being the highest possible number. A good credit score entitles the borrower to a greater loan amount, better interest rates, reduced EMIs, a longer loan period, and so on.
A credit score of 550 to 749 is considered good, implying that you still pose a certain degree of risk to the lender. Yet, if other eligibility criteria are fulfilled, you may still be granted a personal loan. A credit score of 300 to 549 is deemed low and will result in the denial of your loan request.
|CIBIL Score for Personal Loans
|300 – 549
|550 – 749
|750 – 900
Factors That Affect Your CIBIL Score For a Personal Loan
- Outstanding Debt
Always be sure to pay off any outstanding bills. Unpaid debts hurt your credit score. Even if the sum is modest, paying off any outstanding debts is best.
- Irresponsible Payment Behavior
Every month, paying your credit card bills and loan EMIs on time is critical. A 30-day delay may drop your score by 100 points, according to a CIBIL investigation.
If you have many credit cards and loans, it is a good idea to set up reminders to prevent missing or postponing payments. Any missing or late payments reflect adversely on your credit score and indicate that you are inconsistent in repaying your credit.
- Applying For Multiple Loans & Other Forms of Credit
Lenders will want to examine your creditworthiness when you request a loan, and they will do so by retrieving your credit report. This is known as a hard inquiry. If you submit several applications, numerous credit queries will take place at the same time. These are reported and hurt your score, making you seem credit-hungry.
If the loan application was recently denied, it is best not to seek credit from another lender right away. It is preferable to enhance your CIBIL score before reapplying.
- Paying Only The Least Amount Due
If you consistently pay just the minimum amount required, you may be in debt. Rolling over debt and merely paying the minimal amount results in interest rising on your amount owed. As a result, it is recommended that you pay the credit card payments in full. It also displays bad repayment habits.
- High Credit Utilization Ratio
This is the amount of credit used for the available credit limit. Experts suggest you should not use more than 30% of the credit limit. If you have spent more than half of your credit limit, it may hurt your credit score. Lenders will raise an eyebrow if you have a large credit exposure since it signals you are more likely to fail to get a personal loan.
5 Things That Can Help Improve Your CIBIL Score for Personal Loan
- Bank Account
A healthy bank account shows a person’s ability to repay a loan. This enhances the likelihood of a loan being granted.
- A Good Source of Income
A steady salary shows your ability to repay the loan. Even if you have a poor CIBIL score, this has a positive impact on your loan request.
If you have a poor CIBIL score, having a guarantor with a strong CIBIL score can boost your chances of acquiring a personal loan.
- Reduce The Loan Amount
If you do not have the minimum CIBIL score for a personal loan, you may be able to secure a loan for a lower amount and at a higher interest rate.
- Recurring Payments
Paying off pending debts, taxes, and bills on schedule can help improve your CIBIL score for personal loans. It could take some time, but it would still help.
When it comes to maintaining a strong CIBIL score for personal loans, there are no shortcuts. However, if your rating falls between 600 to 700 and you desperately need money, you may still get a personal loan from many lenders.
Before applying for a personal loan, carefully review the qualifying terms, interest rate, and other expenses. Read the loan contract thoroughly to make an informed decision.
A loan may quickly become a burden. As a result, always pick the proper lender, compare rates, and pay your EMIs on time. People with average credit ratings have many options for personal loans in today’s market, yet, the only way to enhance your score is to repay your EMIs and finish your loan on time regularly.
To learn more about the CIBIL score for personal loans, visit Piramal Finance. You may also explore their products and services.