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What role does your CIBIL score play in influencing your PL interest rates?
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A personal loan is perhaps one of the easiest loan types you can opt for. This loan type does not require any collateral and can be used for meeting a wide range of financial requirements – be it your child’s higher education, healthcare exigencies or debt consolidation. Before you decided to click on the personal loan apply button, there are a lot of parameters that are factored in to understand your personal loan eligibility, and the most crucial ones among them include your credit score.
A personal loan is an unsecured credit option and because it requires no collateral, it tends to be risky for a lender to lend you money. Here’s exactly where your credit score comes into play. Your score shows your financial behaviour and your credibility as a loan applicant. While there are 4 credit bureaus – CIBIL, Experian, Equifax and CRIF Highmark that compute your credit score between the range of 300 and 900. The score calculated by CIBIL is highly preferred by lenders as it is India’s oldest and well-known bureaus computing the most accurate score. Ideally, a CIBIL score of 750 and above is considered good by lenders.
Having a good CIBIL score can make your loan approval process hassle free and smooth for you. Your score determines your credibility. By fetching your CIBIL report, the lender gets to know about your past credit behaviour, your credit mix and existing credit products. Based on these details, the lender decides your personal loan eligibility and the appropriate personal loan interest rate that they can offer you. If your CIBIL score is 750 and above, this shows that you are highly credible as an applicant and lenders may easily offer you a lower rate on a personal loan. However, in the case your CIBIL score is less than 750, your personal loan application may either be rejected or approved at a higher personal loan rate owing to the involvement of high risk. Due to this reason, it becomes crucial for you to maintain a high CIBIL score as the requirement for a personal loan can come up at any time and building a good credit score requires time and patience.
You can improve your CIBIL score by developing credit healthy habits. These include adopting healthy financial behaviours such as repaying your credit card dues and loan EMIs in full by the due date, monitoring co-signed and guaranteed loans for timely repayments, keeping a balanced mix of credit, and keeping your CUR (credit utilisation ratio) within 30 per cent. Also, you must consider reviewing your credit report periodically to understand areas where you must improve to enhance your score and detect errors, if any. As a consumer, you can fetch a free credit report from CIBIL once every year.
Frequently Asked Questions (FAQs)
What is the ideal CIBIL score for personal loan application approval?
A CIBIL score of 750 and above is considered good by lenders. Holding this score indicates you are a financially responsible individual, with considerably higher chances of meeting your dues in full and on time.
Does CIBIL score affect personal loan eligibility?
Your CIBIL score is a crucial parameter determining your personal loan eligibility as it is a security free credit option. The minimum credit score you must hold for quick personal loan application approval is 750. A score below this is deemed by lenders as undisciplined nature indicating your chances of missing out on EMI repayments.
Can I get a loan with 550 CIBIL score?
It is tough to get personal loan approval if your CIBIL score is 550. Lenders check your potential to repay your personal loan by reviewing your credit report. Your credit report contains a summary of your past credit behaviour, the credit proceeds you have availed, your credit mix, etc. Such details make up your credit score. Usually, a score of 750 and above is looked upon as good by lenders.
By reviewing your credit report, lenders can determine your risk level and accordingly decide your loan eligibility and interest rate. Besides your credit score, lenders even review your repayment capacity to determine your eligibility.
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