What is my CIBIL score? How can I improve my CIBIL score? Is there any minimum CIBIL score for a personal loan? Does it have any impact on eligibility for a personal loan? If you are also seeking answers to these questions, then you are at the right place. Lending has been an ever-evolving phenomenon, and in the present era, the CIBIL score plays a crucial role in the process of lending.
4000 years back in history, farmers used to keep their seeds and livestock as collateral to get loans. It was only in 321 BCE in India that the first Bill of Exchange was issued as a written order that bound one individual to another, instructing the payment of a fixed sum of money at a predetermined date.1 In the later Eras, there was the establishment of centralised banks that gave more accessibility to loans. Today, credit cards are being introduced, and credit scores are being used for loan approval. With each passing year, there is increased transparency and security in lending transactions, with the help of enhanced credit assessment and risk management methods. One such important factor in lending is the CIBIL score. Let us understand it further in this blog.
What is the CIBIL Score?
CIBIL refers to Credit Information Bureau (India) Limited (CIBIL), and its value plays a crucial role in your financial journey. There are four credit information companies licensed by the Reserve Bank of India, namely Experian, Equifax, CIBIL and Highmark. However, the most popular credit score in India is the CIBIL score.
Credit Information Bureau (India) Limited gathers and maintains credit files of individuals as well as business organisations relating to loan and credit card payments & borrowings. CIBIL acquires this data with the help of its bankers and credit institutions. Also known as the Credit Bureau, CIBIL is covered under the 2005 Credit Information Companies Regulation Act. It gets all the information and support from its associated partners, including bank members & credit institutions, on a monthly basis.
CIBIL credit score is a 3-digit number that represents the credit record of an individual. This score ranges from 300 – 900. The higher the CIBIL score, the better your credit rating. CIBIL India is part of TransUnion, an American multinational group. Hence, credit scores are known in India as the CIBIL Transunion score.
What is the Minimum CIBIL Score Required for a Personal Loan?
There is no minimum CIBIL score for a personal loan, but lenders prefer a score greater than 750. If the score is greater than 750, this indicates a strong credit history and a low risk of default. Some lenders might also consider personal loan applications with lower scores only if they have a stable income and a good repayment history.
A higher CIBIL score also often leads to better interest rates and favourable loan terms and conditions.
What Are the Factors that Affect CIBIL Scores?
You can always build/rebuild your CIBIL score. Yes, there are tips and tricks to improve your CIBIL score. We are sharing some smart ways to opt for to have an improved CIBIL score for a personal loan:
1. Pay on time:
Rule number 1 is never to miss an EMI or never forget about a credit card payment. Set reminders for your credit card EMI. This discipline can have a positive impact on your credit score. Delayed payments not only lead to penalties but also ruin a good credit score. You may also use an auto-payment of bill option and never miss any deadline.
2. Avoid ruthless usage:
Taking too much debt at one time is not advised. Avoid taking too much debt, repay one debt and then apply for another loan. Multiple loans at the same time form a cycle of repayments, leading to higher chances of missing deadlines.
3. Maintain a good credit mix:
Keep the right combination of secured loans, e.g., Home Loans, Car Loans and unsecured loans such as personal loans and credit cards, to build a good credit score.
4. Upgrade Your Credit Limit:
Accept the upgrade in credit limit or apply for new credit within your limit: Do not give an impression that you are continuously in need of credit. Only apply for new credit if you need it and can repay it.
5. Review your credit history frequently:
Keep a close eye on your CIBIL score and check carefully for default entries. At times, CIBIL may make mistakes when it comes to updating your records. Sometimes, a loan you may have repaid may not have been updated on the credit report, which can have a negative impact on you. If you notice such errors, get them reported and removed instantly.
6. Opt for a maximum loan tenure if possible:
Opting for a longer tenor when you take a loan ensures that your EMI is low. This allows you to take another loan/ credit without feeling a financial strain. This does not mean you are going to spend more money. The idea is to have a lot more credit and keep your utilisation low in order to improve your score.
Why is a CIBIL Score Important for Getting a Personal Loan?
A high CIBIL score makes loan approval easier. There are many other benefits of high CIBIL score; they are:
1. Low Interest Rates:
Some lenders price loans according to the risk profile of the applicant. Thus, applying for a personal loan with a high credit score gets you lower rates of interest. Even a small difference in the interest rate impacts your EMIs considerably, thus aim for a higher CIBIL score to avail low credit interest rates.
2. Quick Disbursal of Loans:
Your creditworthiness is decided on the basis of your CIBIL score. Thus, loan applicants with a high credit score will always get loans approved and disbursed at a faster pace. This is also true if you need emergency funds. Stashfin can also help you get a quick personal loan upto 5 lakhs with flexible repayment loan tenure ranging from 0-36 months.
3. More Scope of Negotiation:
Lenders prefer lending to customers with high creditworthiness. This makes them the lender’s favourite and also gives them an edge over other applicants to negotiate with the lender for a better rate of interest or a lower processing fee.
4.Getting Personal Loans Quicker (Pre-approved):
A pre-approved loan is a great way of getting a quick personal loan from a bank. However, these types of loans are only offered to individuals with good credit scores. If you hold a good credit history, then the chances of getting instant loans increase.
5. Longer Loan Tenure Allowed:
A longer tenure on a loan makes your EMIs smaller. But in order to get a loan approved instantly for a longer tenure, you must have a high CIBIL score.
How do interest rates and fees vary based on different CIBIL scores?
Making it simpler, people with good credit scores (CIBIL Score) can get personal loans with lower interest rates. This is because the lenders are more willing to lend money to people with strong financial history. As a result, these lenders can offer lower interest rates. However, people with poor credit scores may have to pay higher interest rates, additional fees, or face stricter loan terms.
Conclusion
The importance of high CIBIL scores for personal loans is great. More importantly, having a high CIBIL score makes your life easier and provides better access to financial products and services. If you wish to check your credit score or improve it from scratch, do not worry. Stashfin can help: Link.
Frequently Asked Questions
1. What is a Considerable CIBIL score for a personal loan?
A CIBIL score higher than 750 is generally considered good. However, lenders do also approve loans to credit profiles having scores above 700 only if they have a stable income and a good repayment history.
2. Is it possible to get a personal loan with a low CIBIL score?
Yes, it’s possible to get a personal loan with a low CIBIL score. It is difficult but not impossible. Some organizations also offer loans with low CIBIL scores, but that comes with higher interest rates or stricter terms and conditions.
3. Can I improve my CIBIL score before applying for a personal loan?
Yes, You can always improve your CIBIL score when applying for a personal loan. You may get help from the experts at Stashfin.
4. Will I have to pay a higher interest rate with a low CIBIL score?
Yes, it is very much possible that you may have to pay a higher interest rate with a low CIBIL score. Lenders prefer lending to organisations or individuals with lower credit scores in the first place. To the ones with low credit scores, they perceive lending as a higher risk, and thus, they may charge higher interest rates to compensate for that risk.