CIBIL Score – Gateway for Easy Loan Approval

A personal loan, also known as a consumer loan, is an unsecured loan that you can borrow from a bank or a financial institution to fulfill personal needs such as home renovation, medical bills, wedding expenses, etc. When planning for a personal loan, the CIBIL score is crucial in determining eligibility and the interest rate offered.

CIBIL or credit score is a three-digit number determined by a borrower’s credit history. The credit score provides an overview of a person’s financial stability. The higher the credit score, the more likely a person will get a loan with better terms like low-interest rates. A credit score is based on several factors, including payment history, the amount of debt you owe, the length of your credit history, new credit accounts, and the types of credit you use. A good credit score is essential to borrow money when needed.

For a personal loan, the minimum CIBIL score should be between 720 and 750. Banks and financial institutions prefer that the person borrowing money should have a decent credit score making him creditworthy.

This article will discuss the key factors the CIBIL score can influence when applying for a personal loan. By understanding these factors, one can improve his score and increase his chances of getting approved for a loan at a favorable interest rate.

Key Factors

Listed below are the key factors that influence the CIBIL score for personal loans.

Improve and Maintain a Healthy Credit Score

To improve and maintain a healthy credit score, a cardholder should pay bills on time, keep the credit balance low, open new credit accounts when needed, and regularly check the credit report. Timely payment of credit bills, loan EMIs, and other debts is an important factor affecting the credit score. Higher credit card balances can indicate that the cardholder relies upon the credit way too much thus decreasing the credit score so one should always try to keep the credit balance low.

Opening too many credit accounts quickly creates a hard inquiry, which decreases the credit score. A cardholder should always consider his credit score before opening any new credit account. By occasionally examining and reviewing the credit report, an individual can improve his credit score. A credit score is provided to an individual based on the credit report. Thus, improving and maintaining a credit score will help you get a personal loan on better terms.

Interest Rates

Interest rates are those you pay to borrow money from a bank or any other lending institution. Interest rates for credit scores are both a reward and a punishment for how well a person manages his money. A cardholder with a good credit score will get lower interest rates on loans and credit cards because the bank or the financial institution will see you as a responsible borrower. At the same time, a cardholder with a low credit score will get a higher interest rate on loans and credit cards because the lender will see him as a risky borrower.

It is important to remember that interest rates can be fixed or variable. Fixed interest rates remain the same throughout the life of the loan or credit card, while variable interest rates can change over time based on market conditions or other factors. Understanding the terms and conditions of the loan or credit card before signing up is essential to ensure that you are aware of any potential changes in interest rates. Having a good credit score can help a cardholder get lower interest rates on loans and credit cards, which can save him a lot of money in the long run.

Faster Processing

A processing fee is a charge that financial institutions may impose when you apply for a loan or a credit card. This fee covers the cost of processing your loan or credit card application and is typically a percentage of the loan amount or a fixed charge. It’s important to note that paying a processing fee does not guarantee loan approval and it does not directly impact your CIBIL score. However, timely repayment of the loan for which you’ve paid a processing fee can positively impact your CIBIL score, while defaults or delays in repayment can negatively affect your score. So, while the processing fee itself is not related to your CIBIL score, the financial behaviors following the loan or credit card approval can influence your credit health.

Minimal Documentation

Minimal documentation is required to check your CIBIL score. A cardholder must provide his basic information like name, date of birth, PAN card number, and contact details. He can apply online and get the report within a few minutes. CIBIL score is an essential factor in determining the cardholder’s creditworthiness and helps him get credit from banks and other financial institutions. Hence, it is essential to maintain a good score by paying bills on time and keeping the credit utilization ratio low. By checking the CIBIL score regularly, one can keep track of his credit health and take steps to improve it if necessary.

A cardholder’s CIBIL report also includes his credit history, which records past credit transactions, including loans, credit card payments, and other financial activities. This can help identify differences in the report and take corrective measures to ensure a healthy credit score.

Bottom line

When a cardholder applies for a personal loan, his CIBIL score, which measures his creditworthiness, can significantly impact the loan application and the terms he is offered. Think of it as a financial report card that shows banks how good you are with money. A high score can unlock better loan terms like lower interest rates. What affects the CIBIL score is paying bills and loan EMIs on time because late payments can lower your score.

Try not to max out the credit cards as using less of the available credit is better for your score. Opening too many new credit accounts in a short period can be a red flag and drop your score, so only apply for new credit if you really need it. Regularly checking your credit report helps you spot any mistakes and understand how to improve your score.

Remember, a good CIBIL score can make getting a personal loan easier and cheaper!