CIBIL Score and Personal Loans: What’s the Connection?

CIBIL score reflects your creditworthiness, which banks/NBFCs check to decide whether to approve or reject your personal loan application. If you get the loan, your behaviour to repay the loan again impacts your credit score. So from application to repayment, Personal Loans and CIBIL Score remain closely connected.

Highlights:

• Good CIBIL score (750+) enhances the chances of personal loan approval
• Get personal loans at low interest rates and high loan amounts with high CIBIL score
• Applicants with high CIBIL score are preferred by lenders for pre-approved loans
• Banks/NBFCs offer longer repayment tenure to applicants with healthy CIBIL score
• With high CIBIL score, avail personal loan up to Rs. 40 lakh at an interest rate of 10.50% p.a. onwards.

Personal Loan & CIBIL Score: Their Two-way Connection

Personal loan is an unsecured and short- to medium-term loan, which helps you meet medical emergencies and fulfil varied financial needs. Personal loan is the easiest and simplest way of availing credit, as it does not require any collateral/security, no major checks or documentation.

CIBIL score is a 3-digit numeric summary (ranges from 300-900) that displays your past credit behaviour and repayment capacity. Your CIBIL score is generated on the basis of your credit information being provided by the lending banks/NBFCs to India’s largest Credit Information Company (CIC) ‘TransUnion CIBIL’ on a regular basis.

Your CIBIL score plays a vital role in determining your personal loan interest rates, as well as loan approval. If you are planning to apply for a personal loan, ensure that you maintain your CIBIL score of 750 or above. Any score of 750 and above is considered good by lenders and they offer lower interest rates because of the applicant’s low credit risk profile.

Two-way connection between CIBIL score and Personal Loan

Before taking Personal Loan – Your CIBIL score matters

• Primary component of your CIBIL report that lenders check before personal loan sanctioning
• Highlights your credit history, creditworthiness and repayment capacity
• High CIBIL score helps in availing personal loans at lower interest rates, higher loan amount and flexible repayment tenure

 After taking Personal Loan – Your credit behaviour matters

• Nature of your loan repayment directly affects your CIBIL score, both positively and negatively
• Pay your EMIs in time – CIBIL score increases
• Any miss or delay in EMIs – CIBIL score drops

In simple terms, your CIBIL score affects personal loan approval and your personal loan repayment affects your CIBIL score. Therefore, if you are able to manage your personal loan by repaying the EMIs in time, be rest assured that your CIBIL score will increase gradually, as it is not an overnight process and takes time.

How Personal Loan affects your CIBIL score

• Paying EMIs in time: Timely payment of your EMIs lengthens your credit history, resulting in improved CIBIL score. However, any missed or delayed payment tends to lower it
• Credit Enquiry: While you apply for a personal loan, there is a hard enquiry reported to the credit bureau, as lenders fetch your CIBIL report. Several enquiries over a short span of time can lower your score

How your CIBIL score affects Personal Loan

• High CIBIL score (750+) increases the chances of loan approval
• Faster loan approval and minimum documentation with high CIBIL score
• Low CIBIL score leads to lower chances of approval or higher interest rates
• Low CIBIL score may also lead to challenges in getting loans of higher amounts

Key Takeaways:

Your CIBIL score influences the ability to get a personal loan. Therefore, managing a personal loan responsibly can help in improving your CIBIL score. Here are key measures to improve your CIBIL score to avail personal loan at low interest rates:

• Check your CIBIL report regularly for errors and raise the dispute with TransUnion CIBIL
• Pay your EMIs and credit card bills on time
• Do not apply for multiple credit products simultaneously
• One should also try to build a healthy credit mix. Different types of loans (secured, unsecured, credit cards) display your diverse ability to handle credit. Too much of unsecured loans can reflect credit hungriness which can be perceived negatively by lenders.

Last but not the least, As CIBIL score helps you secure a personal loan, likewise personal loan behaviour helps you improve your CIBIL score.