A personal loan is one of the most sought-after borrowing options for individuals seeking immediate money for various personal reasons. People belonging to different strata of the society find personal loans to be a convenient choice. The personal loan feature of being an unsecured and collateral-free loan is a concern for lenders. Hence, it becomes necessary for the financial companies to verify the borrower’s CIBIL score to check their credit worthiness and financial history.
CIBIL - Credit Information Bureau India Limited maintains credit records of millions of customers and businesses. These credit records help the lenders to make sound financial decisions and manage the risks of having zero defaulters. The CIBIL score or the credit score reflects the likelihood of the borrower’s credit risk and gives clarity on whether a
personal loan should be approved or not.
CIBIL scores are measured from lowest to highest in a range of 300 - 900 respectively. A good credit score between 500 - 700 shows a borrower’s responsible repayment behavior in the past. This increases the confidence amongst lenders to approve the personal loan on the basis of a good CIBIL record. If the credit score is low, you may be charged a higher rate of interest.
How Does High CIBIL Score Impact your Personal Loan Eligibility? As stated earlier personal loans are collateral-free in nature, which from a lender’s perspective means that in case of default payments, the lender cannot confiscate any assets to recover the cost of lending. This is what makes lenders set strict personal loan eligibility criteria with respect to CIBL score, age, income, repayment capacity for the applicants.
Below listed are the factors that determine agood CIBIL score to avail a personal loan: - Know your Repayment History - This is perhaps the most important factor to keep in mind. Paying your loan EMIs and credit card bills on time will have a positive impact on your CIBIL score. While missing your monthly dues once or twice may not impact your credit score, but doing it often will give a poor credit score impression. Your timely payment adds up to 35% in your credit score.
- Know your Credit Utilization Rate - This is the amount of revolving credit you are currently using, divided by the total amount of outstanding credit cards and loans. Ideally,the utilization rate makes up 30% of your credit score. If your credit utilization is very high, consider clearing your debts soon as a high credit utilization rate may leave an impression of acredit-hungry person.
- Clean Credit Record - If you pay off your debts and other loans on time, your credit record will be maintained and increase your chances of availing of a personal loan.
- Paying Taxes - Making regular tax payments forms a good impression of the borrower’s financial profile and helps to increase the credit score.
- Flexible Interest Rate - Before applying for a personal loan, you may compare the interest rate offered by different financial institutions. The interest rate differs from lender to lender. But, if your credit score is impressive and your relationship with the lender is virtuous, you may be offered a cheaper interest rate for being an esteemed customer.
- Track your incorrect credit report - Sometimes financial institutions tend to make errors in your credit history. To maintain a good credit score, keep a track on your credit history and rectify the mistake on your CIBIL listing, in case of any discrepancy.
To improve your CIBIL score for a quick personal loan here are few things you should consider: - Timely repayment of dues
- Make automated EMI payments
- Borrow only when required
- Maintain a low 30% credit utilization rate
- Avoid joint applicants
- Maintain a balanced credit mix
A CIBIL score forms the basis of apersonal loan because it gives an insight to the borrower’s repayment history and the risk factor involved, if any. Hence, manage your debts to build up your CIBIL score and eliminate all the factors causing a delay in a personal loan approval.
