May 24

CIBIL Score for Personal Loan

Team Antworks

The minimum CIBIL score for a personal loan is generally 750. Anything above this would mean that the applicant is creditworthy and applications are processed without hassle. In general credit scores range from 300 to 900; 300 being on the lower end of the range and 900 on the higher end.

A good CIBIL score is one of the main requirements for a personal loan because personal loans are essentially unsecured loans which makes them more risky for banks. A good credit score indicates that the borrower is responsible when it comes to repaying their loans and credit cards.

Personal Loan CIBIL Score

While you may think that just meeting the criteria of the age, employer and monthly salary entitle you to a personal loan, the fact is that your credit rating is key to your application being accepted. Here are some things you should do when applying for a personal loan.

Check your score yourself: When you apply for a loan, the bank will check your credit score. However, if banks process requests for your score, it can have a negative effect. The best thing to do is check your score yourself before applying.
Find out if you are eligible: A good credit score for a personal loan is one that is 750 points and above. If your score falls below this number, it’s best you don’t apply for a loan because, if you do, it might get rejected. This could lower your score further.
Time your applications: If your loan request is rejected don’t apply for another one immediately after. Too many applications can lead to many rejections again lowering your credit score.
Negotiate interest rates and terms: If you have a good score i.e. 750 and above, you can leverage this to bargain with banks for lower interest rates or better loan terms. Higher your score, better your bargaining power.

What parameters must one follow to make sure their loans are approved?

Whenever you are applying for a loan, the first thing the lender does is checks your eligibility and if you do meet the eligibility criteria, he goes on to look at your credit score and based on that will he decide if the loan has to be given to you or not. If your credit score is low, there is a greater chance that your loan application might be rejected or you might get the loan at a very high-interest rate. But, if your credit score is high, you will get a loan easily and you will also be in a position to bargain and set your own terms and conditions.

The most important parameter that one must follow is that they must ensure that their credit score is high at all times. The following are the ways you can follow to keep a high credit score:

Watch the credit card balances. Make the payments on a monthly basis and don’t let it spill over by paying just the minimum amount due. You will be charged a heavy interest on the remaining balance.
Eliminate nuisance balances. If you have credit cards with small balances due, then clear them off at the earliest or transfer it to another existing card. This way you are not polluting your credit report with a lot of balances.
If you have diligently paid off a debt, then leave the record in your credit report. This way future lenders will know that you are serious about making a commitment to paying off a loan and you do so in an orderly manner. This makes you an ideal customer.
Don’t be credit hungry just because you saw an advertisement. Read through the loan document and then decide if it is worth it or not.
Pay your bills on time. If you think you might forget to pay it before the due date, then instruct your bank to make the payment on your behalf. You can give standing instructions and in this way you will never miss making your payments on time.
Never hint at risk. One risk is missing a payment and the other is paying less than you normally do. Also never take cash advances on your cards at businesses that can indicate future or current money stress.
Spend smartly on your credit card. If you have cleared all the outstanding bill, you now need to focus on how to use your credit card to your advantage. You must make purchases on your card each month and pay it off by the next month, when you are doing so, you will not be charged any interest on the loan. And it will also show that you are on top of your credit consumption habit.
Always check your credit report. At times there might be wrong information or certain information might not have been updated. When you take your credit report, look for frauds and mistakes and omissions. Get it rectified before you are applying for a loan or credit card.
Don’t be a loan guarantor. In the event the loan borrower fails to make the payment and defaults in the payment, it will reflect on your records as well and you might be liable to pay for the debt.

What if my credit score is bad?

There may be times when credit scores make for grim reading. If your credit score is lower than expected, there are steps that can be taken to improve it.

Identify what has spoilt your credit score e.g. late payments on credit cards, loans etc. Late payments or defaults are the prime cause for bad credit scores as it shows that the borrower is not very responsible with repayments or doesn’t have the required servicing capacity.
Make sure to never default on any payments in the future. Make all your credit cards and/or loan EMI payments on time.
If the score is bad because you have been applying for too many personal loans or credit cards and have been getting rejected, stop applying. Work towards bringing your score up and re-apply for a loan only once you have reached the desired range.
If you have loans nearing the end of their tenures, make regular payments till their closure and avoid applying for another loan soon after. Otherwise, it will indicate a poor financial capacity for liquidity and cast doubts on your financial position.
With credit cards, ensure you don’t max out your cards. Maintain a proper credit utilization ratio i.e. don’t use too much or too little of the credit available to you.

What if I don’t have a CIBIL Score?

It may seem impossible but it happens. There are people who have never availed credit in any form and so don’t have a credit history. These include students, those who are at the start of their careers or those who have never taken a loan or a credit card.

If such a situation does crop up then getting a personal loan becomes very difficult. To get a credit history going, the best things to do are:

Fund a required asset by taking a secured loan e.g. a car or a home loan. Secured loans are easier to avail and will help build a credit history.
Approach banks that you have a long relationship with for a credit card. E.g. banks with which you’ve had your salary account with or hold savings with. If you’re not eligible on grounds of creditworthiness, apply for a credit card against a fixed deposit. But try to convert to a regular, unsecured credit card as early as possible as secured cards can negatively impact your score over time.
For young professionals, the right employer can make a big difference. If you are working for a company that is in a bank’s ‘good books’ then you stand a better chance of getting a credit card. Also, many companies tie up with banks to provide loans to employees. These come affordable interest rates and lenient eligibility criteria.

There may be some banks who would be willing to offer personal loans even without a credit score, however, such a facility is provided at the bank’s discretion and may not be available all the time or with every bank.