Many people are not aware of what the Credit Information Bureau India Limited (CIBIL) score is and its importance in seeking a personal loan. Deemed as an essential measure of creditworthiness, the CIBIL score or more popularly called credit score is one of the most important eligibility criteria for approval of your personal loan application. This is because financial institutions need to assess the credit worthiness of their customers to determine their loan repayment ability.
is unsecured, which means that lenders do not secure any collateral from their intended borrowers to secure the loan amount. This causes them to charge higher personal loan rates depending on their judgement of the credit history of the borrower.
Required CIBIL Score for a Personal Loan
The CIBIL score of any prospective customer ranges between 300 and 900. Those with a credit score on the higher end have better chances of availing a loan. This means that a personal loan application by someone with a CIBIL score of 750 and above is more likely to be approved.
Many borrowers ignore checking their credit score before applying for a personal loan, be it online or offline. A bad loan repayment history, piling credit card debt or having guaranteed a defaulter’s loan in the past underscores the increased risk of loan default. This has resulted in many loan applicants getting caught unawares as lending institutions reject their loan applications outrightly. While a lower credit score increases the risk component for the lender, a higher credit score means that lenders have nothing to worry about while sanctioning your choice of the loan amount.
Credit Score Matters
300-599: The chances of getting a loan are lower with a CIBIL score of this particular range. Such low credit score means that the lending institutions will feel unsure about providing credit to the lender. A better alternative is to seek immediate remedial steps to improve your credit score.
600-749: This range of credit score can be described as neither low nor high when looked at the lender’s point of view. Some lending institutions may be willing to give you the loan, albeit at higher interest rates hoping that your loan repayment ability may have improved over the past few years. Also, the amount they agree to lend you may be lower than the amount that you had filled in your application for a personal loan. While assenting to your loan application, they may consider other factors like your recent salary slips, bank transactions over the past six months and zero or low credit card debt.
750-900: Your lending institution will be more than willing to avail you the loan amount you want. Moreover, a high credit score ensures added benefits like low-interest rates, immediate approval and quick disbursal of the loan to your savings or current account depending on your application. A high credit score also qualifies you for a higher loan amount. Negotiating a higher personal loan is not possible with a low credit score.
Do note that apart from CIBIL score, lenders also place their lending criteria on factors such as age, location, availability of income proof & other KYC documents, bank statements, etc.
How Do Lenders Determine Credit Score?
To know the credit score of everyone be it salaried or self-employed, CIBIL considers and maintains all credit-related activity records. These credit-related activities may include banks, credit card companies or any lender. These financial institutions send updated records of their customers’ transactions including information of the regularity of the EMIs paid, outstanding balance, credit card debt including interest accrued, new loan applications, choice of loan tenure, etc. The CIBIL then assess your credit score based on these details, thus, reflecting your creditworthiness to all financial institutions including lending institutions.