CIBIL score is one of the core factors that lenders assess before approving a loan. This three-digit numerical code represents the summary of your credit history and repayment behaviour.
Particularly for collateral-free credit options like a personal loan, it is vitally important for lenders to measure the creditworthiness of borrowers. Hence, one of the primary things to consider before applying is the CIBIL score for a personal loan.
CIBIL score is not an alien concept in India anymore. According to a report, nearly 61% of female borrowers have a credit score of 720, and 56% of males have 709. However, a surprising 62% of the Indian population is still unaware that lenders check applicants’ credit scores before approving loans.
So, why is CIBIL score so important in personal lending?
What is the importance of a CIBIL score for a personal loan?
TransUnion CIBIL is the most popular credit score provider in India. Therefore, a strong CIBIL score of 750 or higher is extremely important:
- To determine a borrower’s creditworthiness
A CIBIL score is the ideal numerical representation of a borrower’s creditworthiness. It helps lenders find your capability to repay a loan within the given tenor. A lender will check the CIBIL score and hedge their risks by charging a lower or higher interest rate accordingly. A healthy score can also open opportunities for lucrative loan offerings.
- To meet the eligibility criteria
TransUnion CIBIL analyses your credit report from various institutions and forms a three-digit score between 300 and 900, based on your credit history. The three-digit score indicates your creditworthiness, as already discussed above.
Nonetheless, the higher the credit score, the better are your chances of availing of a personal loan. Most lending institutions consider a score of 750+ ideal for personal lending. Hence, before applying for a personal loan, it is essential to check your CIBIL score.
- For loan application approval
A robust CIBIL score is your gateway to loan approvals. A lender will approve the application with a high credit score quickly. This is because the proof of your credibility is verified.
This, in turn, will result in speedy disbursal of the loan amount and provide you with major help during a financial crisis.
- For competitive interest rates
CIBIL score for a personal loan is an important factor impacting the interest rate. Therefore, before applying for a personal loan, it is imperative to check out the interest rates offered by different lending institutions. After you are done checking out the interest rates, you can choose your preferred lender.
A healthy CIBIL score can get you a loan at competitive interest rates. Moreover, it gives you the leverage to negotiate with a lender. Some financial institutions may even consider waiving off the processing fee or pre-payment charges upon finding a strong credit score. On the other hand, a low credit score can result in higher interest rates at the lender’s discretion.
- To estimate the loan amount
Lenders determine the principal amount you can borrow according to your credit score. For such a reason, it is essential to learn how to download the CIBIL score, so you can work towards improving it.
In addition, a strong credit score also ensures that you get through the application procedure with minimal documentation.
Dos and don’ts of maintaining a healthy CIBIL score
Now that you know the significance of maintaining a good CIBIL score for a personal loan, you should dive further into finding out some dos and don’ts of maintaining a strong credit score.
What to do
- Pay all your EMIs, loans, and credit card bills on time.
- Borrow only what you require.
- Try to maintain a low credit utilisation ratio.
- Maintain a balance between secured and unsecured loans.
- Try to increase your credit card limit.
What not to do
- Never default in paying off debts.
- Do not apply for multiple loans with different lenders with a short period.
- Refrain from checking your credit report errors regularly.
- Limit credit card spending and access to loans with low interest rates.
While borrowers cannot ignore the importance of a good CIBIL score for a personal loan, it is not the only parameter that lenders consider. For example, financiers also consider your age, income, and employment status, among others, as these can also impact your repayment capacity.
Therefore, ensure that you meet the eligibility criteria as drafted by your choice of lender and move forward with your loan application.