In order to avail any credit, including a personal loan, it is necessary to assess an individual's creditworthiness. This is the bank or financial institution's way of checking if the individual will be able to repay the loan or make regular payments towards the credit card. CIBIL score is one of the most vital factors considered by lenders when assessing your personal loan application.
The minimum CIBIL score required to be eligible for a Personal Loan is 750 (700 for some lenders) or above. This requirement may vary from lender to lender and the type of loan. For secured personal loans, minimum CIBIL score requirement can be much lower. The score should be closer to 900 to improve your chances for personal loan approval.
Lenders have to be sure about your ability to repay the borrowed loan before approving your loan application and your credit score helps them assess your risk of default. Having a high score suggests you are a responsible borrower and have paid your past loan EMIs and credit card bills on time. A lower score usually increases your risk for defaulting on a loan.
A CIBIL score is a 3-digit number (300 to 900) that shows your creditworthiness based on your past repayment behavior.
CIBIL or the Credit Information Bureau India Limited is a licensed credit information company that collects all possible information about your loans and existing credits. Using this, they compile a credit report each year. The details in this credit report are as follows:
The employment history of the individual
With this information, each individual is given a credit score between 300 and 900. An individual is considered to have a good CIBIL score if it is closer to 900.
Each year CIBIL provides all members with a free credit report. This allows you to check and narrow down on the possible options to get a Personal Loan. If you need another credit report in the same year, you can subscribe to the unlimited access plans based on your requirement. You can get unlimited access for 1 month, 6 months or even a year depending on what loan and credit requirement you may have through the year.
Having a CIBIL score makes it a lot easier to avail of the credit products when required. However, many people who have never taken any loan or credit cards, usually don’t have any credit score.
Here are some ways in which you can start building your credit history:
It is an unsecured loan that is provided to individuals to fulfill any of their immediate financial requirements such as travel expenses, expenses towards higher education, medical emergencies, and even any expense towards domestic functions like a wedding. The most important characteristic of a Personal Loan is that it is a versatile loan without very few limitations on what the sanctioned amount may be used for.
There are a few eligibility factors that you need to fulfill in order to get a Personal Loan:
Since these loans are unsecured, credit history and CIBIL score play a very important role in deciding if you will be able to get a loan or not. Usually, a credit score above 700 is required by most banking institutions in order to get approval on a Personal Loan.
There are various factors that impact your CIBIL score and each of them has an impact on the Personal Loan as well. The table given below will help you understand how each of these factors impacts your chances of getting a Personal Loan.
Repayment history and track records of previous loans and credits
If you have defaulted repayment towards your loans or credit cards, it is an indication that you do not have the means to make regular payments. This reduces your creditworthiness and results in a low credit score. In this case, your chances of getting an unsecured Personal Loan reduce. You may be able to look at alternatives like loan against property to fund your financial emergencies.
Credit utilisation means how much of the available credit card limit you are using. For instance, if you have a credit limit of 1 Lakh and you use 50,000, the credit utilisation ratio is 50%. This helps keep the credit score high and in turn, increases the chances of getting an approval on the Personal Loan.
Too many credit cards or constantly increasing credit card limit
An individual with too many credit cards or one who has the habit of increasing the credit limit frequently is categorised as a credit hungry individual. This is an indication of poor spending habits, which reduces the chances of getting a Personal Loan or requires you to pay a higher rate of interest as you are considered a high-risk borrower.
Multiple loan applications
This is yet another indication of a credit hungry individual. If a person is credit hungry, it means that they do not have adequate financial sources to fund the necessary expenses. As a result, repayments on the sanctioned loan may also default. As a result, the approval on a Personal Loan is also affected.
Too many unsecured loans
For most banks, multiple unsecured loans are an indication of poor financial management or lack of necessary sources for expenses. This not only lowers the credit score but also affects the chances of the person getting approval on another unsecured loan.
To increase your chances of getting a Personal Loan, the first step is to improve your credit score. This can be done with the simple steps mentioned below:
Get instant personal loan up to Rs. 20 Lakhs at interest rate of 10.25% p.a. onwards and tenure up to 5 years. Apply online for quick processing and disbursal.
Credit score requirement for Personal loans differs from lender to lender based on different types of criteria. Most banks require customers to have a CIBIL score of 700 or above. However, in case of balance transfer and debt consolidation requests, some lenders may lower their CIBIL score requirement while compensating it with the rate of the interest charged from the customer.
If you don’t have a CIBIL score, banks will be reluctant to accept your personal loan request. In such cases, customers can avail a loan from a cooperative bank, private lender or some online lenders. You can also approach the bank with which you have a long banking relationship. However, it is always useful to build and maintain a good credit score as other available alternatives may involve a higher rate of interest. Customers with zero score can also apply for a secured loan against any asset, such as gold, property, deposits, etc.