Urgent need for funds could arise at any instance, whether for paying medical bills, handling education expenses, or planning a dream vacation with your loved ones. Acquiring a personal loan could be an efficient and effective method to deal with such situations as numerous financial institutions offer it without collateral or security. However, due to the unsecured nature of a personal loan, the lenders tend to perform intensive research about the borrower’s financial stability, creditworthiness, and repayment capacity by gathering information about their nature of employment, monthly income, and most importantly, the credit history or CIBIL score.
Computed and assigned by the Credit Information Bureau of India Ltd. (CIBIL), the credit or CIBIL score is a three-digit number representing the financial summary of an Indian national. While a high credit score of 750 or more increases the probability of getting funds from a lender, a personal loan for a low CIBIL score can also be sanctioned but at a higher interest rate. Hence, one should maintain an excellent CIBIL score by paying existing loan EMIs and credit card bills on time to ensure a smooth and convenient personal loan approval in desperate times without any hassle.
Scroll down to know more about the importance of a CIBIL score for a personal loan.
How is the CIBIL score calculated?
- The concerned agency calculates a CIBIL score only upon assessing an individual’s six months of credit history.
- The CIBIL score depends on various factors such as previous and existing debt repayments (credit card bills and EMIs), credit utilization, and the default history of an individual.
- A CIBIL score is computed on the basis of credit information accumulated from different financial institutions. It ensures the creditworthiness of the borrower and plays a crucial role in getting the loan application approval.
What is the required CIBIL score for a loan?
A CIBIL score of 750 or more is considered excellent for easily obtaining a personal loan in India from a financial institution. Along with demonstrating your tremendous debt-handling ability and repayment capacity, a high CIBIL score also provides you with the upper hand in negotiating with the lender for low-interest rates, large loan amounts and, extended loan tenure.
However, you should not be discouraged if the credit score falls below 750, as you might still stand a chance of acquiring a personal loan but at a higher rate of interest than usual. You could choose to apply along with a guarantor or a co-applicant for getting the loan sanctioned on favourable terms in such cases.
How to improve CIBIL score?
- The first and foremost way to maintain a healthy CIBIL score is by paying the credit card bills and existing monthly instalments on time and in full. You can set automated monthly reminders to pay your debts within the due date.
- Another key method to boost your credit score is by maintaining a good credit utilization ratio (CUR). Defined as the percentage of available credit limit you use to deal with your monthly expenses, the CUR of your credit card should not be more than 30% for a healthy CIBIL score.
- You should avoid applying for multiple loans or credit cards simultaneously, as numerous debts might affect your CIBIL score negatively, resulting in the rejection of your personal loan application.
How to check CIBIL score?
To check the credit score, you should following the below-mentioned steps:
- Log on to the official CIBIL website (cibil.com/freecibilscore).
- In case of a new user, you should create an account by entering your name, active mobile number, email ID, and password. Subsequently, the system will ask you to generate a username and password to access the account in the future.
- Next, you will be prompted for identity verification by providing personal details including your date of birth, address, as well as PAN/AADHAR number. Afterwards, the system will generate and send an OTP to the provided mobile number and email ID for final verification.
- Upon successful OTP confirmation, you will be redirected to a new tab validating your registration. Now, you can check the CIBIL score from your dashboard along with additional financial details through the credit report.
Upon the creation of your CIBIL account, you can log in using the provided credentials and check your credit score easily.