CIBIL Score for Personal Loans: The Key to Borrowing at Favourable Rates

Today, personal loans are an incredible tool for meeting all your immediate financial needs. Whether you want to go on a vacation or renovate your home, you can get a personal loan for every need. Personal loans are convenient finance solutions that come with their terms and conditions, and one of their critical aspects is the CIBIL score. 

The CIBIL score determines whether you are eligible for a personal loan. Your score is a simple three-digit number that displays your creditworthiness to lenders. It can be anywhere between 300 to 900, based on several factors such as your credit utilisation, repayment history, etc. Hence, you need to check your free CIBIL score frequently to ensure that it keeps on improving. 

Role of CIBIL Score in Personal Loans

Personal loans are essentially a form of unsecured loans which are not backed by any collateral. It means that the approval of your loan and the lender’s decision depends on your creditworthiness. If you have a high CIBIL score, you are a low credit risk for the lender and represent a responsible credit history. Therefore, having a good credit score will improve your chances of getting the loan application approved, along with the appropriate loan amount and the right interest rate will be offered. However, if you have a low CIBIL score, many lenders might not give you the loan you need. And even if you get a loan, it might not be on favourable terms and have a high-interest rate. 

Minimum CIBIL Score Required for Personal Loans

Technically, no minimum CIBIL score is needed to get a personal loan. But most lenders will still prioritise a score of 750 or more to offer a loan. A good score means you have a good credit history, which will prove your credible financial behaviour. At the same time, some lenders can also consider a free CIBIL score of 600-700 for people with a strong payment capacity and a stable income. 

However, you must also consider that meeting the minimum score does not guarantee a loan. Other factors are considered in the decision-making, including employment stability, income, and existing debt. 

Factors Influencing the CIBIL Score

Several factors influence your CIBIL score, and you must understand these factors to improve your credibility. Hence, the factors that influence your CIBIL score include the following:

  •   Credit Utilisation

Credit utilisation is an important factor that influences your CIBIL score. If you use a high amount of your credit limit, your score reduces since it displays your dependency on credit. Hence, you need to ensure that you use less of your credit limit as much as you can. 

  • Payment History

Your CIBIL score can improve if you pay your dues on time, such as the loan EMIs and credit card bills. However, your credit score can also decrease if you don’t pay your dues on time. 

  • Credit History Length

Your credit score improves with a long credit history. A lengthy credit history also tells your lenders you are a reliable borrower, and they can trust you with their money. 

  • Credit Mix

It’s better to have a healthy mixture of credit, like secured and unsecured loans and credit cards. Such a mixture will display your ability to manage different financial obligations. 

  • Recent Credit History

Your credit score can be negatively affected if you frequently apply for credit within a short time. Such behaviour reflects financial distress and will not win favours with the lenders. 

Conclusion

Your CIBIL score is very important irrespective of which loan you apply for. Even if it’s a personal loan, having a good CIBIL score will help you negotiate and get better deals and interest rates. Overall, you need to focus considerably on improving your credit score. One way to do that is to frequently check your free CIBIL score through the CIBIL score app and evaluate whether it’s improving and whether you need to do more. 

Knowing your updated credit score and report will help you make healthy financial decisions, assisting you when you need a loan. Working on your CIBIL score continuously will keep improving your creditworthiness, which will win over more lenders.