Why is a credit score important for availing of personal loans?

Whenever you place an application for a personal loan, Fullerton personal loan, IDFC bank personal loan or other bank lenders, usually check your credit score to evaluate your creditworthiness. Same as academic results, a credit score is an in-detail summary of your past credit repayments & the higher the credit score in India, the better is your chances of availing of personal loan approval. In India, the CIBIL score is one of the most common credit scores utilized to summarize your credit history. To be eligible for a personal loan, lenders usually have a minimum CIBIL score needed. Here in this article, we will explain why having a good CIBIL score is crucial for availing of personal loan approval.

How exactly is the CIBIL score computed?

CIBIL score gets measured on a scale of between 0 and 900. A credit score of 750 and above is looked upon as good, while a credit score ranging anywhere between 600 and 750 is looked upon as fair. Anything less than the 600 mark is looked upon as a bad CIBIL score. There are various distinct factors that decide how your CIBIL score must be measured. Few of such parameters involve credit card and loan applications made by the applicant within a given month, the amount spent or borrowed on a card and your repayment behaviour. For instance, if you avail of a loan of Rs 20,000 from the lender and make a late payment or do not repay the amount, this will negatively affect your CIBIL score, which gets reduced. On the other hand, if you constantly make your EMI repayments on time, it gets mentioned in your credit history, which enhances your credit score. As credit score or CIBIL score is indicative to the lender about an individual’s financial habits as well as credibility thus, your accessibility to credit is extremely dependent upon your credit score. A higher score makes you thoroughly eligible for a big loan amount and attractive rate of interest and loan repayment tenures.

One of the basic reasons why few people end up with a low credit score is because they struggle to pay the loan owing to low financial management. Individuals, despite earning a high income, fail to repay their outstanding loan EMIs because they have huge EMIs owing to continuous non-repayments, which becomes burdensome for them. In case you have an unexpected exigency and need immediate funding, it is still fine to factor in availing a loan to considerably take care of the problem. However, the major consideration to factor in is your monthly EMI and whether you can easily repay the same.

What is the CIBIL score needed for personal loan approval?

Lenders must ensure that the applicant holds the financial capacity to undertake as well as repay the loan before they approve the application. CIBIL score assists them in evaluating the applicant’s default risk. A high credit score indicates that you hold the ability to repay your EMIs and credit card bills on time, while a lower credit score means the opposite, which thus means you hold a high risk of defaulting on the borrowed loan proceeds.

What if you do not have a credit score?

CIBIL score is like a report card showing your credit history. This is computed based upon parameters like your credit history, credit type availed, repayment history and other crucial factors. Holding a long credit history makes it simple for the lenders to make an informed decision on offering the loan to you. But many borrowers do not have a prior credit history, which usually makes the lenders wonder if they will be eligible for availing of the personal loan. In case you do not have a credit history, the good news is you may still avail of the personal loan if you are financially stable with a good repayment capacity to meet your personal loan EMIs.

How can you avail of a personal loan with a zero CIBIL score?

It is very simple to get access to credit products like credit cards and personal loans if you have a good credit score. However, if you need immediate funds, there are few ways to avail of a loan with zero need for a good credit score. One of the major things that Fullerton personal loan or IDFC bank personal loan lenders check is your spending habits and income. In case you do not have a good CIBIL score but earn a decent income, you will have a higher chance of availing of loan approval as long as you have a decent balance with spending and income. This would make lenders like IDFC bank personal loan or Fullerton personal loan more and more willing to offer the personal loan to borrowers if you have a regular and stable income for nearly six months from your current employer.

The next option of availing of a personal loan with zero prior credit history is to apply for the secured credit card that gets issued against fixed deposit by applicants. The card can be utilized the same as a regular credit card. By repaying your bills on secured credit cards on time, you can enhance your CIBIL score. There are few companies that have effectively partnered with the banks for their staff. You would be more likely to avail of the credit card approval if you apply from the bank that holds a long-lasting relationship with the organization you are working with. Use the credit card in a disciplined manner for repaying your bills on time to enhance your CIBIL score.

Bottom line

There are different parameters that lenders see when they review your loan application. Also, if you do not have a credit score, you still might be eligible to avail of the loan based on the lender that you apply from. However, holding a CIBIL score, particularly a high credit score, puts a lot of weight on the loan application form. Thus, begin by forming a credit score through responsible spending and timely repayment on your credit card.

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