Most people are unaware of their credit score and its importance in personal loan eligibility. The credit score, which is technically known as CIBIL score, shows your creditworthiness, and it is one of the critical parameters for personal loan approval. The money lenders or financial institutes need to assess the creditworthiness of their customers to determine their loan repayment capacities.
CIBIL score holds a very prominent place when it comes to acquiring a personal loan. Personal loans are unsecured loans, and you don’t need to put any collateral against it. Hence, the money lenders need to be sure about your creditworthiness of their intended borrowers to secure the loan amount.
A good CIBIL score helps you to get lower personal loan interest rates depending on the judgement of your credit history. The lender may charge high-interest rates on personal loans for CIBIL scores lower than a certain value (which again, depends on their policy) or even reject your loan application.
CIBIL Score Requirements for a Personal Loan
The CIBIL score ranges between 300 points to 900 points. The lowest points of the CIBIL score is 300, and the maximum you can achieve is 900, which is the highest end score. Having a 900 score means you are having good chances of personal loan approval along with a lower rate of interest.
Generally, for most lenders, CIBIL score requirements for a personal loan is having 750 points or above. If you have a credit score which is below 750, your loan application might get rejected, or you may have to bear a higher rate of interest on your personal loan.
Don’t Ignore your CIBIL Score
Many borrowers ignore checking their CIBIL score before applying for a personal loan. Regardless of you using online or offline moneylenders, you must check your CIBIL score. You also need to consider that you don’t have any history of defaulting on loan repayments or pending credit card payments. Such lapses result in a decrease in your credit score, or worse, you may end up in the defaulters list.
Most personal loan applicants get caught unawares as leading institutes reject their loan application due to bad credit history. While the lower credit score increases the risk factor for the lender, a higher credit score means that the money lenders can disburse the loan amount without worrying about repayment capacity.
Why Does Credit Score Matter in a Personal Loan?
As stated above, personal loans are unsecured loans. Credit score plays a vital role in determining the creditworthiness of a borrower. You can check your CIBIL score online and then apply for a personal loan. Here’s how your credit score ranges, and why it matters for a personal loan:
A. CIBIL score range 300 to 599
Your chances of getting approval for a personal loan are very poor with this score. Such a low range will make moneylenders worry about your loan repayment capacities. They will feel unsure about providing your loan. You need to seek immediate remedial steps to improve your credit score.
B. CIBIL score range 600 to 749
This range may be low or high depending on the lender’s policy. Some lenders may sanction your personal loan if your CIBIL score lies within this range, but you may need to bear higher personal loan interest rates. Also, the amount they might agree to lend you may be lower than the amount you desired or filled in your personal application form. While assessing your loan application, they may consider other factors like your employment history, income stability, your banking transactions over the past six months and credit card debts.
C. CIBIL score range 750 to 900
Most financial institutions will be willing to sanction you the loan that you desire if your CIBIL score lies in this range. Besides, a high credit score means you are eligible for a lower rate of interest, immediate approval and quick disbursal of the loan, as long as you have the necessary documentation.
Your CIBIL score maintains all credit-related activities, including your banking details, your credit card payments, your previous loans and other debts. Defaulting on payments, or applying for too many loans can lower your CIBIL score, which could lead to rejection of loan applications, or higher interest rates. In order to be eligible for the best offers on loan products, it is essential to maintain good CIBIL scores.