Is There An Ideal Credit Score for Personal Loans?

Updated on: 22 Jan 2024 // 4 min read // Personal Loans
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Your credit score is a measure of your creditworthiness; it facilitates the banks and financial institutions to assess if you are capable of repaying the loan amount on time. In other words, credit rating basically helps banks to gauge the risk involved in lending money.

CIBIL Score is a credit scoring benchmark in India. The score is calculated in the range of 300 to 900 points. The higher the score, the higher are chances of availing of a Loan at a low rate of interest.

What is the ideal Credit Score for Personal Loan?

As a rule of thumb, 750 and above CIBIL score is considered as a good score. Having a 750 or above credit score is an ideal situation.

With good repayment history, you may be pre-approved for various credit lines and loan offers by several banks. Generally, when you are pre-approved for a Personal Loan or any other credit product, it is the lender’s acknowledgment of your good financial standing.

Pre-approved for personal loan direct benefits like approval of loan at a concessional interest rate, processing fee waiver, or EMI holiday of 1 to 3 months.

In real terms, borrowing Rs 10 Lakh for 5 years at 0.5 % lower than standard interest rate will save you Rs 15000 on interest rate anda processing fee waiver will save another Rs 10000.

Let’s compare interest rate range for top unsecured loan products such as SBI Personal Loan, HDFC Bank Personal Loan, Capital First Personal Loan and more.

Bank/NBFCPersonal Loan Interest Rate Range
State Bank of India11.05%-15.45%
Punjab National Bank12.05%-15.05%
Axis Bank15.75%- 24.00%
Federal Bank11.49%-14.49%
HDFC Bank11.25%-20.00%
ICICI Bank11.25%-22.00%
YES Bank10.75%-17.50%
Bajaj Finserv11.99%- 15.50%
IDFC First Bank 
(Previous: Capital First/ IDFC Bank)
10.99%- 17.00%
Tata Capital11.25% – 17.00%

*Interest rates are indicative.

As you can see the interest rates range offered by banks and NBFCs is a comprehensive one. The effective rate of interest varies significantly according to the credit score of the applicant.

Assess your Credit Score: Is it a good, fair or bad score for Personal Loan?

Every individual who is using a credit card or a loan product for more than six months has a credit history and a score. You can request a free CIBIL report online on the official CIBIL website or by contacting a loan comparison website that extends the service at free of cost. You will find your score inside your credit report.

You can assess your credit score referring the table given below:

Credit Score RangeHow does a lender see the score?
Excellent Score (801 – 900)Low risk
Good Score (751 -800)Low risk
Fairly Good Score (701-750)Medium risk
Low Score (651-700)High risk
Bad Score (Below 650)High risk

Always try to maintain a good score above 750 points to remain a low-risk profile for the lender. It will help you become credit ready always.

What happens to your loan application when you have a credit score below 750 points?

We do not live in an ideal world. A simple mistake of missing a credit card bill or delaying a loan repayment can hurt your credit rating adversely and make you ineligible for a cheap loan.

If an applicant with stable monthly income and score above 750 points is eligible for SBI Personal Loan at 11.5 % p.a another applicant with similar employment status but lower CIBIL score of 600 points will not be approved for the same offer. She will get Personal Loan at a much higher rate of 14%-15 % p.a.

With a low credit score, either your application is rejected, or you will be approved for a higher rate of interest.

How to maintain a good credit score for a Personal Loan?

Maintaining a good credit score for instant loan approvals is not a rocket-science for someone who knows how to manage their financial health. All you need to do is use bank products judiciously for a healthy score.

1. Repay on time:

Be it a credit card bill, loan EMI or any home utility bill, you must pay out your monthly obligations before the due date without fail. Every late payment is marked in your credit report and highlights the scarcity of funds in paying out obligations. It is advisable to use Standing Instruction and automate all the periodic payments so that you never miss your repayment.

2. Credit Cards

Using credit cards extensively for your everyday expenses and rolling over the balance from one month to another could be highly detrimental to your credit score. A lot of people use credit cards frivolously and spoil the score.

Credit cards are an excellent product to maintain a good score. You can improve your score with the help of a credit card. Here are some quick tips to use credit card judiciously.

Pay your bills before the due date. Regular repayments help you build a good credit history.

Do not exhaust your credit limit. Try to keep the monthly credit usage below 30 % of the granted limit.

If you are regularly using a single card to a maximum usage limit, apply for another card and reduce your credit utilisation ratio.

Do not switch your cards too often. Too many cards can reflect negatively on your report.

Make sure you maintain a good credit history on each card.

3. A right mix of Loans

While credit products offer you financial freedom, it is vital to apply for loans only when necessary. A Loan adds monthly obligation, and you must carefully assess your repayment capacity before applying for one. Too many unsecured loans and credit cards exhibit a credit hungry behaviour and thus lowers your chances for a low-cost loan.

You must either use a professional help or evaluate your credit profile on own, before Applying for a Personal Loan.

It would be wise to say that there is no one-dimensional approach to a good score. Building a good score is a gradual process. What you do with your funds, reflect on your profile! So be a responsible borrower, and your score will ever stay credit fit.