Credit Score For a Personal Loan

By | April 30, 2020

Personal loans are collateral-free, making it possible for you to access financing without pledging any asset. In fact, this also helps speed up the application process. That said, since personal loans do not require you to offer security, lenders consider other means to ensure that it is safe to lend to you. Among the most important steps taken is a credit score check. Your credit score, generated by agencies such as TransUnion CIBIL, has a significant impact on whether you qualify for funding, and on what terms. Therefore, before you apply, understand what a credit score is, how it’s important to a personal loan and carry out a free CIBIL score check.

What is a Credit Score and Why is it Important?

A credit score is a number ranging from 300 to 900 that summarises your ability to repay loans and serves as an indicator of your creditworthiness. Credit scores are calculated by factoring in determinants such as your past repayment track record, your exposure to loans of different kinds, your credit utilisation ratio and the timeframe over which you have made repayment diligently. These scores are offered by bureaus like Equifax and Experian apart from TransUnion CIBIL, which is one of the most well-known agencies. In fact, you can get a free CIBIL report from the agency once a year.

What is the Ideal CIBIL Score for Personal Loan Applications?

The ideal CIBIL score depends on the lender you opt for. Nevertheless, knowing what your score stands for will help you gauge your eligibility for financing. Consider the following table to understand what each score means.

SCORE SIGNIFICANCE OF SCORE
NA/NH No credit history
300-549 Poor score
550-649 Average sore
650-749 Good score
750-900 Excellent score

 

  • NA/NH: This categorisation indicates that you haven’t managed credit in the past. NA stands for ‘Not Applicable’ and NH stands for ‘No History’.
  • 300-549: Scores in this range are considered to be poor and are indicative of delinquencies. Its best that you remedy occurrences of late payments to get easy access to credit in the future.
  • 550-649: Scores in this range can be termed as average. Since they are indicative of a certain amount of difficulty in managing credit, lenders may charge you a higher rate to offset risks. 
  • 650-749: Scores in this range are considered to be good. Your loan application is likely to be approved, however, you may not be able to negotiate loan terms.
  • 750-900: Scores in this range are considered to be excellent. Not only can you get a high loan amount, but you can also secure a favourable interest rate among other loan terms. 

How to Improve CIBIL Score? 

Irrespective of what your score is currently, you stand to gain when you improve your CIBIL score. To do so, make sure that you pay existing EMIs and credit card bills on time. Further, check for any discrepancies in your credit report and rectify them at the earliest. Similarly, avoid using your credit limit to the maximum and maintain a credit utilisation ratio that’s below 30%. This shows that you aren’t overly dependent on credit. Likewise, avoid making multiple loan applications at the same time. This is because each application causes your score to fall by 3 to 4 points.

When you do make an application, ensure that your score is around the 750-mark. For instance, once you reach this milestone you can get easy access to feature-rich personal loans such as the one offered by Bajaj Finserv. Apart from a loan of up to Rs.25 lakh at competitive rates of interest, you can enjoy a repayment tenor of up to 60 months. Further, the NBFC does not levy any hidden charges and offers a flexi personal loan with which you can draw amounts from your sanction on the go, multiple times. Additionally, you can opt to pay interest-only EMIs for a part of the tenor and lower your EMIs by up to 45%. Best of all, interest is only levied on the amount you use and not the entire loan sanction.

If you find this loan’s offerings beneficial, then after carrying out a free CIBIL score check online, check your pre-approved offer from Bajaj Finserv. This helps you get instant financing through a customised loan deal.

 

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