Top 4 Things You Should Know About CIBIL Score To Get A Personal Loan

Cash inflows for most people follow a pattern, be it agreed salary income or other income that gets deposited into the bank account every month. On the flip side, cash outflows are not linear and while some expenditures are almost the same every month, others can come as an unanticipated hit on personal savings.

Whether it is a sudden expense arising out of hospitalisation or to participate and meet the extra expense due to a social activity like a wedding in the family, one cannot plan for such situations all the time. A prudent financial planning needs to factor in some savings that can help meet emergency needs with cash resources that are in liquid or near-liquid saving instruments. Still, one may need to fall back on a short-term personal loan on certain occasions.

A personal loan is a form of unsecured borrowing and one does not need to put up a collateral to avail it. Lenders, therefore, tend to assess the loan application based on the credit history of the borrower. The credit history is reflected in the CIBIL score, which becomes the first lens through which almost all lenders evaluate such loans.

Here are four factors to keep in mind with respect to CIBIL score for a personal loan.

CIBIL Score And Its Importance

A borrower’s loan application is scrutinised for his or her own creditworthiness, which is captured by their credit score. This is also known as the CIBIL score, after the first company that started credit information services in the country.

It is a three-digit number that varies in the 300-900 range. The higher the score, the better is the credit history and vice versa.

The score depicts the borrowing history based on existing or old loans as well as credit cards usage and the repayment of their dues. This is essentially tracked for the last 36 months and if one has missed an equated monthly instalment (EMI) it lowers the credit score.

In the case of credit cards, the repayment behaviour of the holder of the card is tracked. So, if one has consistently paid the minimum due every month he or she gets a high score. Notably, one does not have to be pay the entire sum due every month but at least the smaller minimum portion.

Lenders, irrespective of their type—large commercial bank, small finance bank and non-banking finance company (NBFC)—tend to use the credit score or CIBIL score to assess if the borrower will pay back the amount lent in its entirety with all dues within the time schedule. It is not the only determinant of the loan being sanctioned but is the first hurdle for getting the money.

Good CIBIL Score For Personal Loan

The higher the score the better it is for availing a personal loan. That said, in general, all lenders tend to place a score of 750 and above as a signal for a borrower with good creditworthiness.

Many banks follow this level stringently but NBFCs are more flexible in their approach and underwriting the loan.

Bad CIBIL Score For Personal Loan

In general, if one has a CIBIL score of 500 or less, it falls in the bad zone and there is a high probability of the loan application getting rejected. The 500-750 zone is an open range and whether a lender agrees to sanction money to a borrower would depend on the specific lender and other factors.

At the same time, at what interest rate one gets a loan if the score is not good would vary from lender to lender.

Improving The CIBIL Score

The good news is that the CIIBL score is not fixed for life and is dynamic. Borrowers can strive to improve it if they have a low score to get loans sanctioned quickly with lower interest rates in the future.

This can be done by pre-paying some loans, especially unsecured loans, making sure one does not miss even a single EMI or the minimum monthly dues of a credit card, and restricting oneself from maxing out the credit card usage limit.

Conclusion

The credit score, or CIBIL score, is the first filter used by lenders to evaluate a loan application, especially unsecured loans such as a personal loan. Independent agencies including TransUnion CIBIL calculate the score, which varies between 300 and 900, with a high score representing a good credit history and vice versa.

A score of 750 and above is considered good by almost all lenders and such borrowers are seen as prime clients. However, those with a lower score can also take out a personal loan, though such loans may come with a higher interest rate.

IIFL Finance, one of the most prominent NBFCs in the country, offers quick personal loan of up to Rs 5 lakh through a digital process at a swift pace. It also offers a competitive interest rate and typically completes the disbursal process within 24-48 hours.