What should be the CIBIL score for personal loan

In this article, we will know that what is the CIBIL score required for personal loan in India?

When you apply for a personal loan in a bank, several factors are looked into by the bank. Lenders have certain eligibility conditions like your age, current income, employment status, nature of job etc. and these aspects are closely assessed. Apart from these, one of the important parameters to measure an applicant’s creditworthiness and repayment capacity is his CIBIL score.

The CIBIL score is very important for getting the personal loan application approved. This is because personal loan is an unsecured loan and hence does not require any guarantor. Lenders rely on CIBIL Score to measure creditworthiness for personal loans, thereby reducing their credit risk to a great extent.

But the question is what is the minimum CIBIL score for personal loan? Let us understand the credit score and know what is the CIBIL score required for personal loan in India:

What is the minimum credit score for a personal loan?

What is the CIBIL score required for personal loan? Before answering this question, let us understand what a credit score is and how it is measured. Credit score is an indicator of a person’s profile. It is measured on a scale of 300-900. Credit score values ​​are interpreted as:

  • A credit score between 800 and 900 is considered the highest
  • A credit score between 750 and 800 is considered good
  • A credit score between 625 and 750 is considered average
  • A credit score below 625 is considered bad

Thus, a credit score of up to 750 is considered ideal for availing a personal loan in India. It helps the borrower to get the loan on the most favorable terms and conditions. Although applicants with a credit score below 750 can also apply for a personal loan, the lender charges higher interest rates than those with an average credit score.

Eligibility Criteria for availing Personal Loan in India

general essentials terms
age The age of the borrowers should be between 21 to 65 years.

The maximum loan tenure depends on the age of the borrower.

credit score A good credit score of 750 or above is considered.

A low credit score is considered to be 650 or below.

Fixed Liability to Income Ratio Current liability to income ratio should be less than 50%
job profile
  • wage earners
  • own business
  • Self-employed non-professionals such as doctors, chartered accountants
Work experience Applicant’s work experience is essential. It can be between 2 to 5 years and should be in the current profession at least last 1 year.
revenue
  • Salaried person should have a minimum monthly income of Rs 15,000
  • Self-employed individual should have a minimum monthly income of Rs 20,000

Why is CIBIL score important for personal loan in India?

Evaluation of CIBIL score is an important part of loan disbursement. This is extremely important for personal loans as these loans are issued without collateral. CIBIL scores are also helpful for borrowers. The reasons why CIBIL score is important for availing personal loan in India are as follows:-

Profile – CIBIL Score helps the lender to assess the applicant’s profile and repayment capacity. A good CIBIL score reflects the good financial behavior of the applicant. This reduces the credit risk of the lender.

Loan Application Approval Quickly – A good credit score helps in winning the trust of the lender. Excellent credit scores fully meet the eligibility criteria, they are processed expeditiously. Loan approval and disbursement happens within hours!

Interest Rate – The lowest rate of interest offered by the lending bank is usually to those who have a high credit score. With a high credit score, the applicant gets an opportunity to avail a personal loan on the most favorable terms and conditions.

Enhances Loan Eligibility – The first aspect of assessing personal loan eligibility is the credit score. Borrowers with a high credit score are eligible for a higher loan amount over a longer loan tenure.

How to get personal loan with low credit score?

A good credit score for a personal loan ensures that you get a good loan deal instantly. On the other hand, personal loans with low credit scores require a lot of scrutiny. But thankfully, getting a personal loan with a low credit score is not impossible. Here are a few things to help you avail a personal loan with a low credit score:

Check Your Credit Score – Make sure to check your credit score when you plan to take a personal loan. Do not apply for a personal loan immediately if you have a low credit score. Try to build up your credit score for at least three months before applying.

Compare Personal Loan Interest Rates for Low Credit Score – Compare the interest rates offered by different lenders if you need a personal loan urgently. A personal loan with a low credit score will cost more. Therefore, it is important to do careful research and compare the benefits offered with the applicable terms and conditions.

Know your repayment capacity – Take a loan only if you can repay it comfortably. This is important as any default in repayment of the loan will lead to a further drop in the credit score.

Check Your Eligibility – A pre-qualification or eligibility check will help you know how much loan you would be eligible for on your current credit score.

Provide a guarantor – A secured loan is always approved, even if your credit score is low. Consider pledging to get a personal loan with low interest.

Add Co-Applicants – Adding a co-applicant with a good credit score to the personal loan application increases the loan eligibility.

Include income from all sources – Indicate your income from all sources. The high income makes the chances of getting a personal loan easy even with low credit.

Steps to improve CIBIL Score in 2022

It is important to have a good credit score for a personal loan, how it can be increased includes the following things:-

Pay bills on time – The best and easiest way to boost your credit score is by paying your credit card bills and EMIs on time. Making timely repayment signifies responsibility.

Minimum Amount Due – The total outstanding on the credit card should be paid on the due date. Paying the minimum due amount and revolving credit leads to a drop in the credit score.

Do not spend over the limit – Reaching or repeatedly reaching the credit card limit is a warning sign. It is considered excessive spending with heavy reliance on credit.

Keep Utilization Ratio Low – If you are a heavy credit card user, apply for a credit card with a higher limit to lower your credit utilization ratio. Credit utilization should not exceed 30% of the credit limit.

Do not apply for multiple loans at once – Too many active loans at a time or applying for loans to multiple lenders at the same time does not go down well with the lending companies. Moreover, every rejection of a loan application negatively affects the credit score.

Apply for a new credit card – Having no credit history is one of the reasons for a low credit score. Hence, applying for a credit card and paying the dues on time helps you build and maintain a good credit score. Having two credit cards from different credit card providers will boost the credit score further.

Things to keep in mind while applying for a personal loan

When you know what is the CIBIL score required for personal loan, then you should keep few things in mind while applying for personal loan:-

Make sure to check personal loan eligibility – Personal loan will be granted only if the eligibility conditions are met. Applying for a personal loan without fulfilling the eligibility conditions can result in loan rejections which can damage the credit score.

Check CIBIL Score – Must know your CIBIL Score. Also, check the minimum credit score for personal loan required by the lending bank. This will enable you to get a personal loan on every terms and conditions.

Do Interest Rate Research – It is important to go through the products carefully to get the lowest personal loan interest rate. Evaluate the benefits and carefully compare the features, interest rates of personal loans offered by different lenders.

Lower your credit utilization ratio – If you have a high credit utilization ratio on your credit card, consider paying off the outstanding balance immediately.

Work out the reasons for the loan rejection – If your previous loan application was rejected, do not apply for a new loan until you have clarified the reason for the rejection. Also, wait for at least three months before reapplying for a personal loan.

Frequently Asked Questions (FAQs) related to CIBIL Score

Question: What is the CIBIL score required for personal loan?

Answer: Generally, a personal loan requires a CIBIL score of 750 or above. If the CIBIL score is less than 750, you can still get a personal loan at a higher rate of interest, provided all other eligibility conditions are met.

Question: How can I improve my CIBIL score for personal loan?

Answer: Consider these things to increase your CIBIL score for personal loan

  • The main thing is to pay the bills on time
  • don’t spend too much
  • keep credit utilization ratio low
  • Do not apply for multiple loans at once
  • apply for new credit card

Question: Why is CIBIL score important for availing personal loan in India?

Answer: CIBIL score is important for availing personal loan because:

  • It helps in assessing the creditworthiness
  • A high credit score speeds up the loan application process
  • Allows you to take loans at low interest rates
  • It enhances loan eligibility

Question: How is the CIBIL score calculated?

Answer: CIBIL score is measured on a scale of 300 to 900. It takes into account four factors: payment history (40%), credit exposure (25%), credit type and duration (25%), and other factors (20%).

Question: What is the best credit score?

Answer: Check out the list of best scores :-

  • A credit score between 800 and 900 is said to be the best.
  • A credit score between 750 and 800 is considered good
  • A credit score between 625 and 750 is considered average
  • A credit score below 625 is considered bad

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