For many people getting a loan has become difficult as the process is now what it used to be when the concept of loans started in India. These days, in order to grant a loan application, lenders review the applicant’s CIBIL credit score. Lenders may reject your loan application or provide you a loan at a higher interest rate or even offer you a loan at the best interest rate available in the market. However, it all boils down to your CIBIL credit score.
CIBIL is a credit reference agency that keeps a tab on the credit history and all other credit information for everybody who has ever borrowed money. Banks, NBFCs, financial institutions, and companies that issue credit cards are among the members of this credit information bureau. These financial institutions send the records of their consumers regularly. Each consumer’s CIBIL credit history is then updated as per their financial behaviour.
A CIBIL credit score is a numerical representation of a consumer’s borrowing habits. It will include the debt they have taken, the manner in which the debts are paid, type of credit accounts maintained by the consumer, age of the accounts, any delinquency. In short, every financial detail is recorded in a person’s CIBIL credit history.
Before lending a loan, financial institutions and lenders assess the CIBIL credit report of the applicant to make their decision. CIBIL credit score of an individual help the lenders to understand the risk involved if they decide to extend a line of credit.
CIBIL credit score and its impact on loan approval
When evaluating your loan application, banks typically want a score of 750, which suggests that you have been a low-risk customer with a solid history of timely loan repayment. With a CIBIL credit score of 750 or higher, you have a strong chance of being accepted for a loan or credit card. In contrast, banks are hesitant to extend you credit if you have a poor score and will almost certainly deny your loan or credit card application.
When it comes to loans, there are various kinds of loans that you may want to apply for. Let us understand in detail about the impact of CIBIL credit score on each of these loans.
A CIBIL credit score between 750 and 900 is regarded as the best by the lenders to easily approve your loan application. This range suggests that the borrower has exercised financial restraint while making debt payments. Any CIBIL score between 550 and 700 is regarded as a moderate score, indicating that the borrower carries some risk but still has a chance of getting loans authorised. However, lenders flatly refuse loan applications of people having a CIBIL score between 300 and 549 as it indicates the borrower is very risky due to the probability of failing to repay the loan.
Reasons CIBIL credit score is important for lenders
Your CIBIL credit score reflects your financial responsibility to the lenders and banks. To elaborate, banks and financial lenders can quickly determine your reliability in repaying debts based on your CIBIL credit score. Apart from this, there are two (2) other major reasons your CIBIL credit score is important for lenders while processing a loan application.
FAQs related to CIBIL credit score and its impact on loan approval
Generally, a CIBIL credit score of 750 is considered to be the average score by most of the lenders, banks, and financial institutions. If your score lies within the range of 720 to 750, you will get good offers on loans.
A CIBIL credit score of 670 is considered to be a low credit score. While some lenders may still agree to extend a line of credit to you, remember that the interest rates will be high. You may also need to arrange a guarantor, who has a high CIBIL credit score for your loan application.
By adopting healthy financial practices such as repaying the debts on time and in full, keeping the debt utilisation ratio below 30%, managing different types of credit mix – you will be able to improve your CIBIL credit score quickly. However, remember, your CIBIL credit score will not show an improvement overnight. It may take around 4 months to a year for the score to improve, depending on your financial behaviour.
Yes. You may buy a home with a loan even if you have a CIBIL credit score of 630. The lenders or banks may ask you to arrange a co-borrower with a high CIBIL score. Or you may have to put up a collateral for getting the loan with a 630 CIBIL credit score.
There are a very marginal number of people with an excellent credit history who have a CIBIL score of 850. Reaching a CIBIL credit score of 900 isn’t impossible, however, it is challenging. Credit score is a fluctuating number that keeps changing as per your financial activity. A little deviation causes a dip in your credit score. To achieve a CIBIL credit score of 900, you will have to be extremely careful in your financial behaviour.