CIBIL score determines your eligibility for securing a loan. It assesses your creditworthiness basis your credit history, repayment habit of dues on loans/Credit Card, frequency of loan application, number of ongoing loans, and various other factors. CIBIL Scores are measured on a scale between 300 and 900, with 900 indicating the highest and 300 being the lowest. The minimum CIBIL score that a borrower generally needs to maintain to be easily eligible for a personal loan is 750.
As your CIBIL score is a reflection of your credit history and loan/Credit Card repayment habits, lenders evaluate your score to determine the following:
Defines your credit health : Assessing your credit health or creditworthiness gives lenders an idea about your ability to repay the debt, if they offer you a personal loan. A high CIBIL score gives them some assurance of getting back the loan amount, while a poor score raises a red flag. A low score reduces your chances of being eligible for a personal loan, but does not negate the chances altogether. However, the loan is offered along with several terms and conditions.
Enjoy speedy loan approval and other benefits : A good score expedites the loan approval process, and makes you eligible for a higher loan amount and better rate of interest, and too from a wider range of lenders. The loan is processed and the loan amount is disbursed into your account in a short span of time.
Avail competitive rate of interest : With a good CIBIL score, you will be in a position where you can negotiate with lenders to bring down the rate of interest, which you will not be eligible for with a low score. This is because a larger number of lenders would show interest in offering a loan to a prospective borrower with a good score, enabling the borrower to choose the lender who is ready to offer him/her the most competitive rate of interest. In contrast, a borrower with a low score will have to settle with the interest rate being offered by the lender, which will generally be comparatively higher than what the lender usually offers.
Avail higher loan amount : A borrower with a good score will be eligible for a higher loan amount. Also, he/she would also be able to negotiate and command a higher personal loan, which would not be possible for one with a low score. In fact, lenders would offer a lower loan amount to a borrower with a low score than what they usually do.
Now that we have discussed the benefits of having a high CIBIL score while applying for a personal loan, let’s explore what high and low CIBIL scores mean.
300 – 599: A score below 600 vastly reduces the chances of securing a personal loan. It conveys the borrower’s poor credit history to the lenders. Therefore, there are high chances of loan applications getting rejected, unless a lender agrees to offer a low loan at a high rate of interest, or against collateral like gold loan, assets, shares and FDs. In case a borrower is not able to secure a loan with this score, he/she has to improve his credit health to be eligible for a personal loan.
600 – 749: The chances of being eligible for personal loans with these middling scores exist, but the chances are lower than those with a score of over 750. In this case, lenders consider other factors like monthly income, employment stability, other on-going loans, etc. to evaluate the prospects of receiving loan repayments from you, and decide on your loan eligibility accordingly.
750 – 900: There are high chances of a borrower being eligible for a loan with scores in this bracket. Besides, the loan approval process will be quick and hassle-free. Not just that, he/she will also be in a position to negotiate on the loan amount and rate of interest with several lenders and avail the best available loan offer. With these scores, he can also negotiate for a higher loan amount and a lower rate of interest.
Late or non-payment of EMIs, and dues on loans and Credit Cards is one of the leading factors that adversely affect CIBIL scores. This reflects on the borrower’s inability to afford the monthly payment of debts or being careful in paying within due dates, making lenders feel sceptical of offering a personal loan.
Maintain a healthy Credit Card utilisation ratio, that is, prevent yourself from exhausting the entire limit of your Credit Card(s). The recommended amount is generally between 30% and 40% of the total Credit Card limit. Also, ensure that you don’t use too little of the available limit.
If one of your loans is nearing the end of its tenure, repay the debt within the due date every month and don’t apply for another loan immediately after its closure. This again negatively reflects on your ability to maintain liquidity.
If you have a recent history of several rejections of credit card and loan applications, stop applying till the time your score has improved.
If you have a low CIBIL score, here are the steps you need to take to become eligible for a personal loan:
Eliminate using Credit Cards with low balances by paying them off as soon as possible or transferring them to another existing card. This will help you prevent your CIBIL score from falling.
Pay your monthly dues on your Credit Card within the stipulated due date every month and keep away from paying just the minimum amount due. Carry forward of the remaining balance to the next month will not only attract a heavy interest, but also adversely affect your score.
If you feel you might miss out on the payment of dues inadvertently, opt for an auto-debit. This will give your lender the mandate to debit the monthly loan from your account on a fixed date every month. Remember to maintain the necessary balance in your account on the pre-determined date, so you are not charged a heavy interest due to the unsuccessful auto-debit process.
If you have an on-going loan, pay the dues well within time every month to improve your score and set a good credit history for future lenders.
Make sure you read the loan document thoroughly and clear your doubts before signing on the dotted line, so as to prevent yourself from getting caught unawares in the future.
Eliminate financial behaviour that indicates risks to a good credit history, like taking cash advances on your Credit Cards. This alerts lenders about you facing financial stress.
Check your credit report before applying for a loan to ensure there are no errors or omission of transactions. If you find inaccuracies or frauds, get it rectified by raising a CIBIL dispute before you apply for a loan.
Don’t be a loan guarantor. If the borrower defaults in paying dues on time, it will not only affect your records but you might also have to pay the debt on his/her behalf.
What is the minimum CIBIL score required for being eligible for a personal loan processing?
CIBIL Scores are measured on a scale between 300 and 900, with 900 indicating the highest and 300 being the lowest. The minimum CIBIL score that a borrower generally needs to maintain to be easily eligible for a personal loan is 750. But in cases of balance transfer requests or debt consolidation, lenders may lower their CIBIL score requirement in lieu of the interest it charges from customers.
Can I apply for personal loan without having a CIBIL score?
Yes, though a lack of credit history may make it difficult for you to secure a personal loan, you can explore the following options to improve your chances of being eligible for a loan.
Collateral loans: You can opt for loans against collaterals like assets, shares, gold loan and FDs and such other products for which banks usually do not evaluate the CIBIL Report
Monthly income is enough for you to repay the loan: If your monthly income is sufficient for you to repay the debt on time.
Peer to Peer Lending: If you are looking for a loan of a small amount and are ready to pay a high rate of interest, this may be ideal for you.
Make use of your parent’s or spouse’s CIBIL Score: If either of your parents or spouse has a good CIBIL score, you can apply for a personal loan by adding his/her name as a joint loan holder.
How to apply for personal loan if I have a low CIBIL score?
If you have a low CIBIL score, here are the steps you need to take to be eligible for a personal loan:
Eliminate using Credit Cards with low balances by paying them off as soon as possible or transferring them to another existing card. This will help you prevent your CIBIL score from getting falling.
Pay your monthly dues on your Credit Card within the stipulated due date every month and keep away from paying just the minimum amount due. Carry forward of the remaining balance to the next month will not only attract a heavy interest, but also adversely affect your score.
If you feel you might miss out on the payment of dues inadvertently, opt for an auto-debit. This will give your lender the mandate to debit the monthly loan from your account on a fixed date every month. Remember to maintain the necessary balance in your account on the pre-determined date, so that you are not charged a heavy interest due to the unsuccessful auto-debit process.
If you have an on-going loan, pay the dues well within time every month to improve your score and set a good credit history for future lenders.
Make sure you read the loan document thoroughly and clear your doubts before signing on the dotted line, so as to prevent yourself from getting caught unawares in the future.
Eliminate financial behaviour that indicates risks to a good credit history, like taking cash advances on your Credit Cards. This alerts lenders about you facing financial stress.
Check your credit report before applying for a loan to ensure there are no errors or omission of transactions. If you find inaccuracies or frauds, get it rectified by raising a CIBIL dispute before you apply for a loan.
Don’t be a loan guarantor. If the borrower defaults in paying dues on time, it will not only affect your records but you might also have to pay the debt on his/her behalf.
What are the factors that banks check while assessing eligibility for a personal loan?
Eligibility for loan approval is evaluated basis the following factors:
Payment history – Lenders check for frequency of amount overdue cases and defaults in payments, which acts against a borrower getting a loan approved
CIBIL Score and Report – It is one of the most essential factors that determines the chances of loan approval, since it defines the borrower’s credit health
Income and employment status – These details help the lender assess the borrower’s ability to repay the debt, if the loan application is approved
EMI to Income Ratio – Borrowers have a higher chance of securing a loan with an EMI that is not more than about 50% of his/her monthly income. This will be lower if the borrower already has other loans to be repaid
Account Information – Lenders thoroughly analyse the number of suits and those written off, if any
I don’t have a CIBIL score because I have no credit history. What should I do to improve my chances of being eligible for a personal loan?
Since you have no history of availing a loan, Credit Card transactions or EMIs, your CIBIL Score will be nil. In that case, it will be difficult for lenders to evaluate your payment habits and creditworthiness. Here’s how you can increase your scope for being eligible for a personal loan.
Opting for a credit card from a bank where you hold a salary account or savings account for a considerably long time. In case you are not eligible for it because of low creditworthiness, you can opt for a Credit Card against a Fixed Deposit. However, make sure that you convert to an unsecured Credit Card at the earliest as a Credit Card against a FD will adversely affect your credit score in the long-run.
If you are employed at an organisation that shares a healthy relationship with the bank where it holds its salary account, you will automatically be eligible for a Credit Card on having your salary account opened with them. Besides, if your company has collaborated with a bank to offer loans to its employees, you stand a greater chance of being entitled to better interest rates.
