Are you planning to get a personal loan? Before you apply, you must check whether you meet the minimum CIBIL score requirement. The CIBIL score helps determine your eligibility, interest rate, and other terms for a personal loan. Generally, a higher CIBIL score increases your chances of approval and securing better loan terms.
Here, we have discussed the minimum CIBIL score required for a personal loan, how you can maintain a healthy score, and the factors that can influence it.
Minimum CIBIL Score For Personal Loan
The minimum CIBIL score required to apply for a personal loan ranges between 700 and 750, depending on the financial institution. A score of 700 and above signifies a creditworthy individual capable of meeting the loan repayment terms. If your CIBIL score ranges between 600 and 700, you may still be able to obtain a personal loan, but it may come with higher interest rates and a shorter repayment tenure.
How Can You Maintain a Healthy CIBIL Score for a Personal Loan?
To maintain a healthy CIBIL score for a personal loan, you must follow the below tips:
- Ensure to pay credit card bills and EMIs on time.
- Maintain a good credit utilization ratio.
- Do not deactivate an unused credit card.
- Avoid simultaneously applying for multiple loans and credit cards.
- Maintain a balanced ratio between secured and unsecured loans.
- Review your credit report regularly and immediately correct any discrepancies.
- Monitor your cosigned, guaranteed, and joint account monthly.
Factors affecting CIBIL score
Your CIBIL score determines your eligibility and loan terms for a personal loan. There are several factors that influence this score, including:
1. Payment History
Timely payment of your EMIs and credit card bills can positively impact your CIBIL score, while missed or delayed payments can significantly lower it. A consistent record of on-time payments shows that you are a responsible borrower.
2. Credit Utilization Ratio
The credit utilization ratio is the percentage of the total available credit that’s currently in use. Ideally, this ratio should be kept below 30%. A higher utilization rate can indicate that you are overly dependent on credit, which can lower your CIBIL score.
3. Duration of Credit History
A longer credit history provides more data points for assessing your credit behavior. If you’ve maintained a good repayment record over a long period, it reflects positively on your score. Conversely, a shorter or inconsistent credit history may impact your score negatively.
4. Credit Mix and Variety
Having a diverse credit portfolio, including a mix of secured loans (like home or auto loans) and unsecured loans (like personal loans or credit cards), can enhance your CIBIL score. It gives an overview on your ability to manage different types of credit responsibly. Relying too heavily on one type of credit, particularly unsecured loans, may adversely affect your score.
5. Number of Credit Inquiries
Each time you apply for credit, a hard inquiry is generated to assess your creditworthiness. Making frequent credit inquiries within a short period can lower your CIBIL score, as it may suggest that you are seeking more credit than you can manage. It’s wise to apply for credit only when necessary to maintain a healthy score.
Conclusion
While a high CIBIL score is generally a prerequisite for securing a personal loan, it is not the only determining factor. Other factors such as income, employment stability, and debt-to-income ratio also have a significant impact in determining your eligibility. It is essential that you maintain a good CIBIL score and improve it by paying off existing debts and avoiding frequent credit inquiries.
Frequently Asked Questions
Why do lenders check my CIBIL score before approving a personal loan?
Lenders check your CIBIL score to evaluate your creditworthiness and repayment capacity so they can assess the risks involved in lending money to you.
What factors lead to a low CIBIL score?
Factors like missed payments, high credit utilization, multiple loan applications, and a high number of mismanaged unsecured loans can contribute to a low CIBIL score.
How long does it take to improve my CIBIL score?
Depending on your credit behavior and financial discipline, it may take several months to a year to see a significant improvement in your CIBIL score.
Do all lenders have the same minimum CIBIL score requirement?
No, the minimum CIBIL score requirement can vary between lenders. Some banks or NBFCs may have higher or lower thresholds based on risk appetite and lending policies.
What role does my repayment history play in determining my CIBIL score?
Repayment history is an important factor in determining your CIBIL score. Consistently paying your EMIs and credit card bills on time positively influences your score, while missed or delayed payments can significantly lower it.
