If you are looking for a personal loan to finance some immediate expenses, you must know about one of the most crucial determinants of your loan approval – the CIBIL score.
CIBIL is an authorised bureau in India that provides every individual with a credit score. A credit score is a 3-digit number ranging between 300 and 900 that acts as a benchmark for lenders to gauge your credit health. Hence, you require a decent CIBIL score for personal loan approval.
A CIBIL score includes all the information related to your EMI payments, your account’s outstanding balance, credit card payments, any alterations to your credit limit and other details associated with your credit profile. Subsequently, a mathematical formula is devised to calculate your final credit score. If you have made all your EMI payments in time without any defaults in the past, your CIBIL score would be high. Conversely, if you have a history of defaulting, it will adversely impact your credit score.
Besides your monthly income, the CIBIL score is one of the most critical parameters that decide your personal loan eligibility. The higher your CIBIL score, the better are the chances of your getting a loan approved. But the question is- how much CIBIL score is required for a personal loan?
As a preliminary step, lenders look for a minimum CIBIL score of 750 before they take a call on your loan application.
What do different CIBIL scores mean?
Let us now look at three cases, each of which details the CIBIL score range for a personal loan.
Case 1: Your CIBIL score lies between 300 and 599
Wondering whether you can qualify for a personal loan for a CIBIL score of 550? Well, the chances are that you will not qualify for a personal loan. This is because a score between 300 and 600 warns the lenders about the bad credit behaviour of the borrower. Thus, most banks will disapprove of your personal loan application immediately if you fall under this CIBIL score range for a personal loan.
Case 2: Your CIBIL score lies between 600 and 749
With a credit score in this range, there is a relatively moderate chance of your loan application being approved by lenders. Financial institutions would usually look for other factors to gauge your personal loan eligibility, such as your monthly income, other existing loans, employment stability, etc.
Case 3: You have a CIBIL score of 750 or above
If you have a score of 750 or above, your loan application is very likely to be approved. Besides, there are other advantages of maintaining a high credit score for a personal loan. For instance, you may be able to negotiate a lower interest rate with the lender.
While there is no minimum CIBIL score required for personal loan approval, it is safe to say that a low score will lead to the rejection of your application. So, make sure you maintain a healthy CIBIL score.
Ways to improve your CIBIL score
Is your CIBIL score on the lower side? If yes, you will find it challenging to get your loan approved. But, don’t worry! You can increase your CIBIL score over time by taking the following measures:
1. Pay your bills on time:
Paying your credit card bills and other outstanding debts on time can significantly improve your CIBIL score. On the other hand, even a single missed payment can negatively impact your score.
2. Limit your spending to 50% of your credit card’s approved limit:
If the approved limit of your card is Rs 2 lakh, try to restrict your spending to less than half of the amount. It represents a good spending discipline.
3. Avoid applying for multiple loans simultaneously:
Remember, when you apply for a loan or credit card with multiple lenders, you appear ‘greedy’ for credit, making a lender more likely to reject your application. Multiple loan applications also adversely impact your credit score.
4. Regularly monitor your credit health:
Check your credit score regularly. You can check your credit score and credit report online for free. Keep an eye on any changes and see your progress. If you find any errors or discrepancies, get them removed immediately. This will help you achieve your desired CIBIL score required for a personal loan.
How long does it take to improve CIBIL score?
The good news is that you can take as long as you want to rebuild your credit, so be patient with your efforts.
First, identify the extent to which your credit score is hurt. Then, you can explore what immediate steps you can take. The credit score recovery process can take anywhere between 6 months to a year, depending upon your credit health.
For instance, suppose you are in the process of repaying a home loan, and you miss a payment. A missed payment will negatively affect your score for a while. However, you can still rebuild it quickly by making payments timely in the future. However, if you continuously miss payments or default on loans, it will damage your score considerably. Therefore, it will take you a long time to recover.
Final thoughts
Now that you know the answer to how much CIBIL score is required for a personal loan, you can start taking steps to increase your score and apply for a loan.
Searching for a reliable lender to borrow a loan? Look no further than Tata Capital. Faster approval, quick disbursal, affordable personal loan interest rates, and customised solutions are some unique features that make Tata Capital a leader in the industry. Lastly, you can check your free credit score on our website within a few minutes!
02 February 2024
5 mins read
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