How Credit Score Affect Personal Loan Application
Credit score is an important factor lenders look into to see how credit worthy you are. A higher credit score has many benefits during personal loan application
The CIBIL score is an important measure of an individual's creditworthiness. This is taken into account by the lender when applying for mortgages, personal loans, and other loan products. Personal loans are a type of short-term or medium-term unsecured loan. It can be taken for a variety of reasons, including: For example, if you are on vacation, you pay off your debt, medical expenses, and wedding expenses.
Personal loans are unsecured, so you do not need to provide collateral to your lender. However, the lender should check your creditor and make sure you can repay the amount you borrowed.
However, in addition to the general eligibility criteria that must be met, you also need to have a healthy CIBIL score for a personal loan to be approved.
CIBIL Score Required For Personal Loan
The CIBIL score is a number that represents the credit history from several details on the credit report. CIBIL score is a number that ranges between 300 and 900. The higher the CIBIL score, the higher the chance to get a loan or credit score to get approved. Usually, a CIBIL score of 750 or above is considered as ideal by the majority of the lenders and you will qualify for various credit cards and loans. Making multiple enquiries and late payments will lead to the reduction of CIBIL score.
Lenders want to make sure that you've got the capacity to pay off the borrowed sum earlier than they approve your mortgage application. Your credit score rating facilitates the danger of default. If you've got an excessive rating it indicates you've been an accountable borrower and paid your credit score card payments and EMIs on time. A decreased rating will increase your danger for defaulting on the loan.
Personal Loan for a CIBIL Score Less Than 550
Most lenders will reject the loan application in case your CIBIL rating is much less than 550. A low CIBIL rating will imply that you aren't financially stable and could discover it tough to pay off the loan. Few creditors do offer loans for a low credit score rating. However, the personal loan rates could be high. It is essential that you test the terms and condition and evaluate the fees and interest rate earlier than availing the loan.
Factors Affecting Credit Score
There are different factors that affect your credit score. Understanding the factors can help you improve the credit score. The top 5 factors are,
- Payment history: Payment history is one of the essential components in credit score. A one missed payment may have a bad effect on your score. Lenders need to ensure that you'll pay lower back your debt, and on time, while they're thinking about you for a new credit.
- Amount owed: The credit utilization ratio is the next most important factor in your credit scores. This ratio represents how much of your available credit you are utilizing and might deliver an image of ways reliant on non-cash funds. Using more than 30% of your available credit will create a negative impact.
- Credit history length: How long you've held a credit account makes up 15% of your credit Score. This consists of the age of your oldest credit account, the age of your latest credit account and the average age of all of your accounts. Generally, the longer your credit score history, the better your credit score scores.
- Credit mix: credit scoring models consider the type of account and how well you manage a huge variety of credit products.
- New credit: The number of credit accounts recently opened, as well as the hard inquiries creditors make when you apply for a credit, accounts for 10% of your credit score. Too many inquiries can indicate increased risk, and as such can harm your credit score.
Ways Your Credit Score Impacts Your Loan
- When making use of a loan, your Credit Score is as essential as your employment history, salary, and different eligibility factors. Make sure your rating is at the least above 750.
- Good repayment history is One of the parameters for a loan approval.
- The errors in your credit report can impact your CIBIL score. Check your credit report and if there are any errors correct them.
- Loan with a low credit score or no credit score is difficult but not impossible. But be prepared for a longer processing time and as banks will put in some additional checks. However, it might not be a good deal.
Things to do before applying for loan
- Check your credit health before applying for a personal loan.
- Get your CIBIL report for free by visiting official website.
- Once you have decided to take a personal loan, look for lenders that are offering good deals on their loans. Browse through the different deals and select one that is most favorable to you.
- Avoid making multiple applications.