The CIBIL score is a 3-digit score issued by authorized credit rating bureaus. It is based on an individual’s loan repayment history and ranges between 300 to 900. The credit score will drop if an individual has not paid any loan repayments on time or credit card bills on the due date. The score will be higher for an individual who has made all repayment within the accepted timelines
A credit score indicates an individual’s creditworthiness. It is taken into consideration by a lender before providing any loans. It suggests the borrower’s loan repayment capability and assures the loan repayment supplied by the lender.
Let us see an example. Reet has been a computer engineer working for the last three years. She needs a loan for home renovation. This is her first loan. To date, she has made timely payments of her credit card bills. She believes she would have a good credit score and quickly get a personal loan.
The financial institution will check Reet’s eligibility before granting her the unsecured personal loan. They will check for the following:
· Required loan amount
· Loan tenure
· Capacity to repay the loan
· Credit score
A personal loan is an unsecured loan, which involves risk for the loan provider. This is why the primary deciding factor in granting a loan is the applicant’s credit score, and they will do the before giving any such unsecured loan. The credit scores may range as mentioned below.
Credit scores 300-599
Financial institutions consider A credit score between 300-599 poor. Such a credit score shows a dismal credit history, i.e., the borrower may have defaulted in repaying the previously-approved loan. Most lenders will not approve an unsecured loan with such a credit score. However, some lenders may provide a loan but will likely demand a higher interest rate or personal security of a more considerable amount.
Credit scores 600-749
A credit score ranging from 600-749 is also considered low but not as bad as mentioned earlier. Several lenders may choose to grant the unsecured loan and overlook this score. The other factors on which a loan is granted will be a relationship with the bank, secured loan, income proof provided by the applicant, etc. The loan provided might have a slightly higher rate of interest.
Credit score above 750
All loan providers consider a borrower with a credit score above 750 reasonable for a personal loan app. The benefits of maintaining such a score are a better interest rate, lower processing fees, higher loan amounts, and other benefits. Some lenders provide instant personal loans to applicants with a higher CIBIL score.
The financial institution will do a credit score check before approving any personal loan application submitted by the applicant. The is vital in deciding the applicant’s eligibility criteria. A borrower with a credit score above 750 is provided a personal loan before the applicants with a lower CIBIL score. A personal loan can be procured where the score is not very good. However, the borrower would have to settle with a lender who may not be established or offer a loan at higher interest rates and collateral.
In the case of Reet, her credit score is good. She has better chances of getting a personal loan at standard terms.