Anyone who wishes to take a loan, to meet their short or long term goals, has to fulfill the eligibility criteria set by the banks or any other financial institution. Other than general criteria like age and income, CIBIL or credit score is something that every money lender checks. CIBIL or the Credit Information Bureau (India) Limited provides credit score to an individual that defines his/her credit worthiness. In order words, the 3 digit CIBIL score, which ranges from 300 to 900, provides an idea whether you will be able to pay back the loan amount with interest on time. This credit score is based on the assessment of one’s financial position and previous credit history. This information is collected by CIBIL from partner banks.
In order to get a loan easily and at a considerate rate of interest, one must possess a good credit score. High credit scorers as perceived as low-risk customers who also get favorable deals like lower rate of interest and higher loan amount.
Why Check Credit Score Before Applying For A Loan?
Not everyone loves surprises, especially when it comes to finances. There have been many incidents where the potential home buyers have selected the house, made advance payment and then applied for home loan from a reputed bank, only to found that their loan application has been rejected because of low credit score. At that particular point of time, it gets extremely difficult to arrange for such huge amount. Other than this, there can be a financial emergency where you need a certain amount for which you have to take a personal loan but your CIBIL score does not allow you to get a loan at low interest rates. If you don’t want to be part of such incidents, it is better to check your CIBIL score before applying for a loan.
Here are some other benefits of checking your CIBIL score before applying for a loan:
Choose a Course of Action
If you know your credit worthiness beforehand, you will get an idea whether you will be able to get a loan from bank or other financial institution or not. If you have a low credit score, then you can start looking for other available options to lend money.
Easy Loan Approval
Your credit score determines your payment behavior based on your financial history. This helps money lenders to understand your creditworthiness. If you have checked your credit score beforehand, you will know that getting a loan will be easier.
Low Interest Rates
Good credit score not only means getting a loan easily but at lower interest rates. For those who don’t know, almost every bank has set a range of interest rates for a particular type of loan. If you want lower interest rates, then your credit score should be high. Hence, a good CIBIL score also helps you save money.
If you have a good credit score and you know it beforehand, you can negotiate on the terms offered by the loan like waiving off processing fees and other loan terms.
Avoid Lowering Down Credit Score
Did you know that frequent loan rejections can further lower down your credit score? In order to avoid this, it is advisable to check your credit score before applying for a loan or even a credit card, especially if you have faced loan rejections in the past.
How to Check CIBIL Score For FREE?
One can get Free CIBIL report once in a year, as per RBI’s rule. All you need is to provide basic information like email address, date of birth, gender and PAN details. After this, you need to pay to get your CIBIL report and score, whose charges start from Rs. 550. Once the information is authenticated, you will get the credit score and report in your email ID within 24 hours.
Since this service is available for free only once in a year, you can opt for other methods to get your free credit score. Financial marketplaces like Paisabazaar.com offer free credit score check with monthly updates at zero charges.
How to Get Loan If CIBIL Score Is Low?
Usually a credit score above 750 is considered to be good to lend money. If your credit score is lower than this and you still need money urgently, then here are some of the things that you can do:
Go For a Secured Loan
If you have a fixed deposit in your bank, then you can take credit against it. You can also use your assets like gold or insurance scheme as collateral and take a loan against it. However, the amount offered is not too high. But the interest rate is lower.
Take Help from Your Employer
Many organizations offer loan from partner banks to its employees. If you have a stable job with good income, then your low credit score can be overlooked by the partner bank.
Understand Your Credit Report
There are cases where low credit score is due to recent credit history or due to some other genuine reason. If you can explain the reason behind default credit score, you can talk to the bank. They might give you a benefit of doubt and approve your loan application. However, opt for this only if you have a strong explanation.
Take Loan from NBFC
Unlike banks, NBFCs are flexible when it comes to credit score. If your score is below 600, then avoid going to bank and opt for NBFC. The rate of interest is relatively higher but more is the chance of loan approval.
Wait for Few Months
In case you are not in a hurry to get a loan, then we would suggest you to wait for few months to build a strong credit score and then apply for loan. We have discussed the ways to improve your credit score in the next section.
How To Improve Credit Score For Easier Loan Approval?
If you are not in hurry to borrow money, then it is advisable to wait for some time and improve your credit score. If you follow these practices, then you can see an improvement in your credit score within 6-8 months.
Pay Your Credit Bills On Time
The first and foremost thing that you hold start doing is to pay bills and loan EMIs on time. You can opt for automatic payments or calendar reminders to ensure on time payment. Paying bills on time will surely have a positive influence on your credit score.
Maintain Credit Utilization Ratio
Try to keep credit card balance low and pay its bill in full on time. Also, the credit score is influenced by your overall credit utilization rate, which is basically your total used credit by total available credit. You can get a new credit card to increase your overall credit limit.
Don’t Close Old Accounts
The older your credit history is, higher will be your credit score. That’s why try not to close old credit accounts. This will not only affect your credit history but also decreases the total credit limit.
Avoid Too Many Hard Enquiries
If you have frequently applied for loan and credit card frequently in the past and faced rejection, then it is also an important reason behind low credit score. Avoid applying for too many credit card or loan for some time.