a credit score is a 3-digit number that all lenders check when you apply for a personal loan. credit score ranges between 300 to 900 based on the credit history of an individual. there are four authorized credit rating agencies operating in India including - CIBIL, Equifax, Experian, and CRIF Highmark. the lenders offer interest rate and loan amount approval on the basis of the credit score of an individual. if you have a higher credit score, you can get access to personal loans at relatively lower interest rates and for a higher loan amount.
there are many factors affecting the eligibility of an individual applying for a personal loan. some of the major factors are provided below:
out of all the factors mentioned above, the credit score and credit report of the applicant issued by the credit rating agency is one of the most important considerations for sanctioning a personal loan.
let's find out the details of the possibility of a personal loan that can be sanctioned based on the credit score of an individual:
300 is the lowest range of the credit rating. hence, if your credit score is between 300 to 599, it's considered to be very poor by any lender. it shows that you have a bad credit history and you may not be able to repay the loan on time. hence, most lenders reject the personal loan application of the applicants having a low credit score. if your credit score falls within this range, it's important that you take immediate measures to improve your credit score to get access to personal loans.
a credit score ranging between 600 to 749 is not considered enough, however, lenders may consider offering personal loans to applicants based on certain factors such as:
in most cases, the interest rates offered to individuals with a credit score ranging between 600 to 749 are very high and the loan terms may not be favorable to the borrower. hence, it's advised that you should read the loan terms and conditions very carefully before signing the loan contract or take measures to increase your credit score and then apply for a personal loan.
a credit score above 750 is considered to be good by all the lenders. individuals having a credit score above 750 can get instant personal loans and that too at a lower interest rate. many lenders would offer instant loans or pre-approved loans for applicants with such a high credit score. if you want to get better interest rates, higher loan amount, higher tenure, lower processing charges, then take measures to increase your credit score above 750.
as you can see from the above examples, you need to have a minimum credit score of 750 and above to get a personal loan instantly and at low-interest rates. you can check your credit score on CRED.
lenders have very strict personal loan eligibility criteria. a low credit score can hamper your chances of securing a personal loan but you can always improve your credit score by taking a few measures as mentioned below:
monitor your credit report regularly
monitoring your credit report regularly can help in checking if there is any misinformation in the report or factors affecting your credit score. you can immediately report the incorrectly presented information for rectification by the credit agency. also, you need to fix any loan or credit card defaults or delayed payments to increase your credit score.
ensure low credit utilization ratio
you should try to minimize your credit card spendings and use it only for essential transactions. it is advised to limit your credit utilization ratio to 30% or less. it will help you to maintain a good credit score in the long run.
don’t apply for too many loans
frequent loan applications display your credit hunger and can become one of the reasons for the drop in your credit score. when you apply for a fresh loan or your loan application gets declined, all this information gets recorded in your credit report. when the lenders check your credit report, you may look credit hungry, and hence, they would avoid giving you a loan.
pay your EMIs on time
you should never delay or default your EMI payments and prioritize these over all other payments. if due to any reasons you are unable to pay your EMIs on time, request your lender to restructure your debt, extend the loan tenure or modify other loan terms. you can use the CRED personal loan calculator to plan to restructure your personal loan.
avoid settling loans and credit cards
sometimes people who could not afford loan repayment request the lender to close the debt by accepting a lower amount than the actual due amount. while the lender may approve such requests, however, these settlements have a negative impact on your credit report resulting in a low credit score.
have the right credit mix
lenders offer two types of loans - secured and unsecured. secured loans include - car or home loans, while personal loans are considered unsecured. borrowing too many unsecured loans can have a negative impact on your credit score and lenders may decline future loans.