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Your CIBIL score is a three-digit-long numerical figure that is assigned to you by credit bureau TransUnion CIBIL. It is the first thing that a lender looks into when he/she receives your personal loan application. This article will tell you everything you need to know about the role your CIBIL score plays in your personal loan application and approval process.

Minimum CIBIL Score for a Personal Loan

The minimum CIBIL score that you must have at the time of applying for a personal loan is 750. If you have a CIBIL score of 750 or above, the lender will think of you as a creditworthy individual who can pay off his/her personal loan obligations as per the payment terms. If you have a CIBIL score that is within a range of 651-750, you may still get a loan, but chances are that it may attract a higher interest rate and you may have to repay it over a shorter repayment tenure. If your CIBIL score is below 650 mark, it will be very difficult for you to get a personal loan. Chances are that the lender may even reject your personal loan application if that is the case.

Why is a CIBIL Score Important for a Personal Loan

Your CIBIL score, which stays within the range of 300-900, is an indicator of your creditworthiness. The higher your CIBIL score is, the better are your chances of a loan approval. A high CIBIL score tells the lender about how you treat the credit given to you and how diligently you pay it back. If your CIBIL score indicates that you are a creditworthy individual who has paid off past credit obligations on time, that is only when the lender will consider approving your personal loan application. This implies that your personal loan approval is majorly dependent on your CIBIL score, and hence it is very important for you to maintain it.

How Your Credit Score Impacts Your Personal Loan

Your CIBIL score unquestionably impacts your personal loan approval the most. In fact, several things in connection to your personal loan depend on the range your CIBIL score is in. The table below will tell you exactly what your CIBIL score will mean for your personal loan approval chances, depending on the range that it is in.

CIBIL Score Range

Loan Approval Probability

750-900

High as any lender considers a CIBIL score above 750 a good score. A CIBIL score of 750 or above is an indicator of the fact that you are a creditworthy individual who practices financial discipline.

600-750

Although a CIBIL score in this range is not ideal, most of the lenders will give you a personal loan if your score is in this range. However, with a CIBIL score in such a range, you may get the same at a high interest rate and/or with a shorter loan repayment tenure.

300-599

Low as a CIBIL score in such a range is a sign of credit unworthiness and financial indiscipline. A CIBIL score in such a range may also cause your loan application to get rejected. In such a scenario, the only ways you can perhaps get a personal loan is by either offering collateral, getting a guarantor on board or taking a Loan Against Property (LAP).

How to Improve Your CIBIL Score for a Personal Loan

Some of the ways in which you can improve your CIBIL score are as follows:

 

  • Pay Your Debts on Time: Timely loan/credit card payment demonstrates financial discipline, hence it will serve you and your CIBIL score well if you repay them on or before the due date. If you fail to do so, it could perhaps spell disaster for your CIBIL score, and in turn, your loan approval chances in the future.
  • Keep a Low Credit Utilisation Ratio: Your credit utilisation ratio is the percentage of your available credit that has been used up. If you want to improve your CIBIL score and maintain it, you must keep it anywhere between 30-40%. If you have used more than 40% of your available credit, it will tell the lender that you are dependent on credit. If the lender forms that impression of you, it may impact your personal loan approval chances negatively.
  • Maintain Old Credit Cards: If you have one or multiple credit cards that have been active for several years, you may want to rethink cancelling them before their validity runs out. If you have been repaying your dues for such credit cards in a timely manner over years, it will alone improve your credit score and help you maintain it. As and when you close your credit card, that account practically vanishes from your CIBIL report within a few months, which will make it difficult for the lender to get a sense of your financial management skills.
  • Make Prepayments When Possible: When you pay off your loan/credit card obligations before the repayment tenure ends, that act is known as prepaying or foreclosing. If you have some extra funds in your account, consider prepaying/foreclosing any outstanding loans/credit card bills. If you do so, it will automatically increase your credit score as and when your lender shares information regarding your prepayment/foreclosure with CIBIL.
  • Space Out Credit Applications: When you apply for a loan/credit card, the lender makes an inquiry for your CIBIL score. Such inquiries are known as hard inquiries. If you apply for loans/credit cards too many times in a short span of time, say a month, your CIBIL score will go down. Not to mention that everytime a lender rejects your loan application, your CIBIL score takes a hit too. Hence, if you want to improve and maintain your CIBIL score, try restricting the number of times you apply for credit to once or twice a month.
  • Maintain a Healthy Credit Mix: A credit mix is the ratio of secured to unsecured forms of credit that you have taken. If the number of unsecured credit accounts outnumbers the secured ones, the lender will think of you as a credit hungry person. As a result, he/she may even reject your loan application. It is due to this reason why you must consider taking collateral-backed loans/credit cards every now and then to increase your credit score and keep it above the acceptable range.

Things to Keep in Mind Before Applying for a Personal Loan

Some things you must be cognizant of ahead of applying for a personal loan are:

 

  • Compare Personal Loan Options: Several lenders will be willing to give you personal loans at different interest rates and with a variety of repayment terms. Hence, you must always look at the personal loan offers by more than one lenders, compare them and then apply accordingly. Such an act may actually help you save thousands, if not lakhs, in interest payments and processing fees.
  • Check Your CIBIL Score: When you submit a personal loan application, the first thing that a lender will check is your CIBIL score. You only stand a decent chance of getting a personal loan if your CIBIL score is above 750. Hence, ahead of applying, you must always check where you stand in terms of creditworthiness by pulling up your CIBIL score.
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  • Consider Add-on Charges/Fees: In addition to your standard interest, many lenders also levy other kinds of charges on you. Most commonly, they will levy a processing fee, a prepayment/foreclosure charge and late penalty fees. Hence, you must look into all such costs attached before applying.
  • Reduce Your Credit Utilisation Ratio: If your credit utilisation ratio is above the 40% mark, you must try to get it down before applying for that personal loan. One way to do it is by prepaying your loans/credit card debts ahead of the repayment tenure maturity. Another way to do so is by getting a secured credit card in your name.
  • Avoid Applying for Credit Frequently: If your personal loan/credit card application has already been rejected by a lender, applying for credit shortly after is not going to do you any favours. So, if you have already applied for and been denied credit once recently, wait for at least 2 months before reapplying for a personal loan.

FAQs on CIBIL Score for Personal Loan

  • ✔️How to check CIBIL score for personal loan?

    • If you want to check your CIBIL score for a personal loan, you can do so through the official CIBIL portal itself. You are entitled to one free CIBIL report every year. Alternatively, you can check your CIBIL score via Bajaj MARKETS itself.
  • ✔️ How much credit score is required for a personal loan?

    There is no minimum credit score requirement as such. However, most lenders require you to have a CIBIL score of 750 or more for a personal loan. A CIBIL score of 750 or above that indicates financial discipline and creditworthiness, which means that you could get a personal loan instantly.

  • ✔️ How to get a personal loan with a low CIBIL score?

    If you have a low CIBIL score, there are several lenders that will still give you a personal loan. But, you will get the same at a higher interest rate and chances are that you will get a lower amount. Additionally, you may be required to repay the same over a shorter loan repayment tenure.

  • ✔️Does CIBIL score affect your personal loan eligibility?

    Yes, your CIBIL score definitely affects your personal loan eligibility. The higher your CIBIL score is, the better are your chances of getting a personal loan and vice-versa. If your CIBIL score is 750 or above that, chances are that you will be granted a personal loan instantly.

  • ✔️Can I get a personal loan with a CIBIL score of 550?

    Most of the lenders will most probably not give you a personal loan with a 550 CIBIL score. However, you may still be able to get one if you have a long standing relationship with the bank or get a guarantor on board. Alternatively, you can also try to get a Loan Against Property (LAP) if none of the previous two options work out for you.