If you have emergent expenses that you don’t have funds for, you may to need to take a personal loan to meet those obligations. Personal loans can be availed quickly for many purposes. You can even take a personal loan for reasons such as refurbishing your house or going on a vacation. The best part about a personal loan is that there is no restriction on what you can use the borrowed funds for, as long as it isn’t in violation of any law.
Once the decision to take a personal loan has been made, the next step is to apply for a personal loan. When you approach a bank to take the loan, you will have to fulfil certain eligibility criteria which could range from a minimum age of 21 years to being salaried with a specific minimum monthly income.
However, apart from the general eligibility criteria you that you will be required to fulfill, you will also need to have a good CIBIL score for your personal loan application to be approved.
CIBIL score for Personal loans
A CIBIL score is a number assigned to each person representing his/her creditworthiness. It is this number that plays a major role when banks decide whether a personal loan application should be approved or not. It receives information from banks and other financial institutions about the financial behavior of their customers and aggregates this information to produce a score or number which to indicate customers’ creditworthiness.
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What CIBIL score is required for a personal loan?
The minimum CIBIL score for a personal loan is generally 750. Anything above this would mean that the applicant is creditworthy and applications are processed without hassle. In general credit scores range from 300 to 900; 300 being on the lower end of the range and 900 on the higher end.
A good CIBIL score is one of the main requirements for a personal loan because personal loans are essentially unsecured loans which makes them more risky for banks. A good credit score indicates that the borrower is responsible when it comes to repaying their loans and credit cards.
There are many factors that affect credit scores, either positively or negatively.
- Factors that affect credit scores positively
- Making timely payments towards credit cards.
- Paying loan EMI’s on time.
- Paying not just the minimum due but the entire outstanding balance.
- Factors that affect credit scores negatively
- Non-payment or late payment of credit card bills and loan EMIs
- Maxing out credit cards or consistently using more than 75% of the credit limit.
- Paying only the minimum due on credit cards; the remainder is still considered overdue.
- Possessing too many lines of credit especially unsecured forms.
Personal Loan CIBIL Score
While you may think that just meeting the criteria of the age, employer and monthly salary entitles you to a personal loan, the fact is that your credit rating is key to your application being accepted. Here are some things you should do when applying for a personal loan.
- Check your score yourself:When you apply for a loan, the bank will check your credit score. However, if banks process requests for your score, it can have a negative effect. The best thing to do is check your score yourself before applying.
- Find out if you are eligible: A good credit score for a personal loan is one that is 750 points and above. If your score falls below this number, it’s best you don’t apply for a loan because, if you do, it might get rejected. This could lower your score further.
- Time your applications: If your loan request is rejected don’t apply for another one immediately after. Too many applications can lead to many rejections again lowering your credit score.
- Negotiate interest rates and terms: If you have a good score i.e. 750 and above, you can leverage this to bargain with banks for lower interest rates or better loan terms. Higher your score, better your bargaining power.
What parameters must one follow to make sure their loans are approved?
Whenever you are applying for a loan, the first thing the lender does is checks your eligibility and if you do meet the eligibility criteria, he goes on to look at your credit score and based on that will he decide if the loan has to be given to you or not. If your credit score is low, there is a greater chance that your loan application might be rejected or you might get the loan at a very high interest rate. But, if your credit score is high, you will get a loan easily and you will also be in a position to bargain and set your own terms and conditions.
The most important parameter that one must follow is that they must ensure that their credit score is high at all times. The following are the ways you can follow to keep a high credit score:
- Watch the credit card balances. Make the payments on a monthly basis and don’t let it spill over by paying just the minimum amount due. You will be charged a heavy interest on the remaining balance.
- Eliminate nuisance balances. If you have credit cards with small balances due, then clear them off at the earliest or transfer it to another existing card. This way you are not polluting your credit report with a lot of balances.
- If you have diligently paid off a debt, then leave the record in your credit report. This way future lenders will know that you are serious about making a commitment to paying off a loan and you do so in an orderly manner. This makes you an ideal customer.
- Don’t be credit hungry just because you saw an advertisement. Read through the loan document and then decide if it is worth it or not.
- Pay your bills on time. If you think you might forget to pay it before the due date, then instruct your bank to make the payment on your behalf. You can give standing instructions and in this way you will never miss making your payments on time.
- Never hint at risk. One risk is missing a payment and the other is paying less than you normally do. Also never take cash advances on your cards at businesses that can indicate future or current money stress.
- Spend smartly on your credit card. If you have cleared all the outstanding bill, you now need to focus on how to use your credit card to your advantage. You must make purchases on your card each month and pay it off by the next month, when you are doing so, you will not be charged any interest on the loan. And it will also show that you are on top of your credit consumption habit.
- Always check your credit report. At times there might be wrong information or certain information might not have been updated. When you take your credit report, look for frauds and mistakes and omissions. Get it rectified before you are applying for a loan or credit card.
- Don’t be a loan guarantor. In the event the loan borrower fails to make the payment and defaults in the payment, it will reflect on your records as well and you might be liable to pay for the debt.
Always remember the closer you are to the higher limit of your credit score, you are in a better position to negotiate the interest rate and the terms and conditions provided you meet all the other eligibility criteria.
CIBIL has provided for individuals to get their credit reports online. To apply for your credit score, just follow the following steps.
- Go to the CIBIL website and open the application form.
- Fill in the necessary details. These will be identifying information such as your name, ID details, date of birth etc.
- Enter your contact details i.e. phone numbers and postal address.
- Pay the nominal charge for the report. This amounts to Rs.470 (the amount may change at any time without prior notice).
Once you have completed all the formalities and made the relevant payments, CIBIL will get in touch with you and provide you with the credit score.
What if my credit score is bad?
There may be times when credit scores make for grim reading. If your credit score is lower than expected, there are steps that can be taken to improve it.
- Identify what has spoilt your credit score e.g. late payments on credit cards, loans etc. Late payments or defaults are the prime cause for bad credit scores as it shows that the borrower is not very responsible with repayments or doesn’t have the required servicing capacity.
- Make sure to never default on any payments in the future. Make all your credit cards and/or loan EMI payments on time.
- If the score is bad because you have been applying for too many personal loans or credit cards and have been getting rejected, stop applying. Work towards bringing your score up and re-apply for a loan only once you have reached the desired range.
- If you have loans nearing the end of their tenures, make regular payments till their closure and avoid applying for another loan soon after. Otherwise, it will indicate poor financial capacity for liquidity and cast doubts on your financial position.
- With credit cards, ensure you don’t max out your cards. Maintain a proper credit utilisation ratio i.e. don’t use too much or too little of the credit available to you.
What if I don’t have a CIBIL Score?
It may seem impossible but it happens. There are people who have never availed credit in any form and so don’t have a credit history. These include students, those who are at the start of their careers or those who have never taken a loan or a credit card.
If such a situation does crop up then getting a personal loan becomes very difficult. To get a credit history going, the best things to do are:
- Fund a required asset by taking a secured loan e.g. a car or a home loan. Secured loans are easier to avail and will help build a credit history.
- Approach banks that you have a long relationship with for a credit card. E.g. banks with which you’ve had your salary account with or hold savings with. If you’re not eligible on grounds of creditworthiness, apply for a credit card against a fixed deposit. But try to convert to a regular, unsecured credit card as early as possible as secured cards can negatively impact your score over time.
- For young professionals the right employer can make a big difference. If you are working for a company that is in a bank’s ‘good books’ then you stand a better chance of getting a credit card. Also, many companies tie up with banks to provide loans to employees. These come affordable interest rates and lenient eligibility criteria.
There may be some banks who would be willing to offer personal loans even without a credit score however, such a facility is provided at the banks discretion and may not be available all the time or with every bank.
A simple thing like a CIBIL score is all that could stand between you and your bank while availing a personal loan. Contrary to popular belief, it is not difficult to maintain a good CIBIL score. All you have to do is be responsible with your money and manage your credit cards and loans properly.
Know More in CIBIL:
- CIBIL score for Axis Bank Personal Loan
Member banks of credit information agency, CIBIL, stipulate credit scores as part of their loan eligibility criteria. A good credit rating gets you the best rates on unsecured loans. Do you know CIBIL Score for Axis Bank Personal Loan
- CIBIL score for ICICI Bank Personal Loan
If you need funds quickly, ICICI Bank is the place to go. Hassle-free disbursal, attractive interest rates and flexible repayment options all form part of the bank’s loan offerings. Do you have the right CIBIL Score for ICICI Bank Personal Loan
- CIBIL score for HDFC Bank Personal Loan
HDFC Bank is the preferred banking partner of thousands of loan seekers all across the country. If you want to a part of its personal loan community, you will need to have the required CIBIL Score for HDFC Bank Personal Loan
Q. What is the minimum CIBIL score required for personal loan processing?
Personal loans are granted by different banks based on different types of criteria. Most banks favor customers with a 700+ CIBIL score. However, in case of debt consolidation and balance transfer requests, banks may lower their CIBIL score criteria while compensating it with the interest charged from customer.
Q. Can I apply for personal loan without having a CIBIL score?
In case you do not have a CIBIL score then banks will be outright reluctant to entertain your personal loan request. For such customers the only options that remain would be to avail loan from a cooperative bank or a private lender or from some family member or friend. However, it is always advisable to build up a good credit score so that you do not need to go to private lenders and cooperative banks which do not guarantee any safety of your money. Customers with no credit score can also secure loans against any asset like gold jewelry or property.
Q. How to apply for personal loan if I have a low CIBIL score?
In case of low CIBIL score either customers can wait and improve their score before applying for credit or they can avail personal loans at a much higher rate of interest. However, the former is a much better choice than getting caught in the vicious circle of large amount of debt.
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