When you apply for a loan, the lender, lets say the bank, will need to know that you are worthy of receiving that loan. This worthiness has nothing to do with a charming personality, what it actually means is that banks need to know how good you are with your finances which tells them if you will repay the loan in a timely fashion and without missing payments.
The way bank and other financial institutions can know your credit worthiness is through your CIBIL (Credit Information Bureau Limited) score. It a number that is associated with you and tells the bank how responsible you are with your loans and credit cards. The CIBIL score is one of the prime parameters used to determine the approval of a loan. The CIBIL score was Indias first ever credit rating system and is recognised by all the banks as an authority on an individuals credit rating.
How the CIBIL score system works is similar to the credit score systems found in many countries. You are assigned a score, a number, between 300 and 900. The number that you get is a result of the information that the banks forward to CBIL. This information is a collection of your repayments of Personal Loans, home loans, vehicle loans and credit cards. If all your payments are made on time then you can hope to have a good score.
If you skip payments or fail to pay the credit back in time, it could lower your credit rating which would, over time, would make it difficult for you to get approved for a loan. CIBIL is also going to include utility bill payments which means that your score could improve or deteriorate depending on when you pay your phone, electricity or water bills.
Since CBIL scores are supposed to be an indicator of your financial habits, the score changes based on how you handle your loans and credit cards. These are some of the factors that can have a negative effect on your CIBIL score.
Since personal loans are unsecured loans, taking too many personal loans can cause your credit score to fall.
If you miss an instalment on your loan then it may be viewed as poor financial planning which means that your credit rating will suffer making it difficult for you to secure loans in the future.
If you are too close to the limit of your credit cards too often, it too points at constant debt and an inability to manage money wisely leading to a reduction of your CIBIL score.
Just like the EMI for your loans, if you fail to pay your credit card dues on time, they too can have a negative effect on your credit history.
You might think that paying just the minimum due on the card or slightly more than that is enough to keep things under control but it's not. While the banks may not be overly concerned that you have an outstanding balance, CBIL on the other hand takes it as a negative sign. For CIBIL, outstanding balance are not a good thing and tend to lower your scores.
It may sound like a good place to be in if you don't have any loans or credit cards at all when in fact it is not. This is so because not having a credit history means that your credit score is 0 by default which means that if you were to apply for a loan or a credit card, the chances of it getting reject are higher.
If you apply for a loan or a credit card and your application is rejected, you tend to apply with another bank, and another and so on. Such practices reduce your score for two reasons. The first is that CIBIL takes constant rejects to be a bad sign and secondly because every time a bank requests CIBIL for your credit information, your credit scores come down.
If you have settled credit cards, that is, if you have negotiated with the bank and closed a credit card after paying an amount lesser than what was due on the card, then your credit history will receive a red flag that could cause trouble later.
While banks may not tell you what CIBIL score makes you a perfect candidate for a personal loan, they do say that your credit score will play a part in the approval of your application for a loan. If your score is below a certain number then chances are that you may not be approved for a loan.
Even if you are approved, the interest rates offered to you may be higher than those offered to someone with a good score. While most banks in India may be vary of providing loans if credit scores are low, there are private finance companies that may offer personal loans for low CIBIL scores.
A personal loan is a loan that you can take to cover any emergent expenses like unexpected bills or paying for things like an expensive vacation. The idea of the personal loan is to ensure that you have the funds you need in case of an emergency. The defining features of this loan are that it is unsecured and can be used for anything. Unlike vehicle and home loans, there is no restriction on what you do with the money you get.Features of personal loans
There are lots of features that serve to make personal loans very attractive to people looking for quick and easy financing options.
Unlike other loans, personal loans tend to be a bit more expensive since the interest rates charged on such loans are higher. Just like with any other loan, the specific interest rates for these loans will differ from one bank to another. The general range of the interest rate can be from 15% per annum to as high as 20% per annum depending on the bank.Eligibility criteria for personal loans
Since these loans are only available to individuals they come with certain eligibility criteria which are:
Since personal loans are meant to be easy to acquire, the documentation for them is quite simple and includes the following documents.
If you happen to have a CIBIL score that is not good then there is no reason to lose heart. There are things you can do to improve that score. Here are some tips that can help you improve your credit rating.
It may not be easy but it is possible to get a loan even if you have a poor credit history. All you have to do is to shop around a bit and talk to multiple banks about the possibility of extending you a personal loan with your CIBIL score. Just make sure that if you do get the loan, you pay it back on time and without any hassles so that your credit score doesn't take too many hits.