05 Mar 2019 | 3 min read
A personal loan comes as a big help in case of a financial emergency. But not everyone can be eligible for a personal loan as several checks are needed before the bank decides whether or not to grant to a loan. CIBIL Score or Credit Score is among the first things that the lender looks at. So, does it mean that people with Bad CIBIL Score cannot get a personal loan? No. It is possible to get a personal loan with a low CIBIL Score. Let us learn more about what CIBIL score is and how it impacts your eligibility for loans.
TransUnion CIBIL is one of the most popular credit bureaus in India along with Experian and Equifax. These credit bureaus receive credit information from different lenders and assign a three-digit score to every individual. These scores may vary from 300 to 900 depending on the scale and the bureau.
|A score below 300 denotes poor credit||People with poor scores will find it really difficult to get any type of loan- whether secured or unsecured.|
|Score of 300-600 means poor to fair||If you have a fair score, you may be able to get a secured loan from but you would not be in a position to negotiate a better rate of interest.|
|A credit score of 600-750 means fair to good score||A score like this opens up your options for unsecured loans along with high-ticket secured loans. However, you still may not be able to negotiate better deals on loans.|
|A score above 750 translates to an excellent credit score||If you have an excellent score, you have great chances of getting approved for a loan at competitive rates of interest.|
Better the CIBIL Score, higher will be your chances of getting a personal loan. Before you apply for a personal loan, you should check CIBIL score to make sure that your application does not get rejected. However, even a great credit score does not guarantee loan approval; several other factors come into play.
When you take a loan or credit card from a bank, the lender is required to share the details of your payment frequency, late payment, etc. to the credit bureaus. Based on the information furnished by the lenders, bureaus assign a credit score to you. This score helps other lenders understand whether you are a responsible borrower. On the basis of your CIBIL Score, income and several other factors, banks approve your loan application.
When you register for a free credit score service from any of the bureaus, you not only get the credit score but also a complete report of your credit information. This is known as a credit report and contains detailed information about your credit accounts- credit cards, home loan, car loan, personal loan, etc. It also includes late payments (if any) along with the days past due. You can see your credit utilization ratio based on the credit usage on various accounts. Any hard inquiry on your credit profile is also reflected in your credit report. With a credit report, you can get complete insights about your credit and how you can improve credit score.
Not just personal loan, CIBIL Score is important for any type of loan or credit card. It is the rate of your creditworthiness and hence, it is the first thing that banks look at when you seek a loan from them. It is a part of the pre-screening only which means that the lenders will look at your CIBIL Score but they would not just reject you on the basis of a poor score. A number of other factors are involved in deciding whether you will be approved for a loan or not.
Listed below are a few things you should keep in mind at the time of applying for a personal loan:
As we have mentioned before, CIBIL Score is among the first few things that the banks consider for pre-screening of a loan applicant. They will check if you meet the basic criteria regarding age, residential status, employment status, etc. along with the credit score. Even if you have a low CIBIL score and everything else checks out, you may still have a chance at getting approved. Personal loan at the best interest rate may not be at your disposal if you have a low credit score. On the other hand, applicants with excellent scores not only have higher chances of approval but they are also in a position to shop around for better rates of interest.
When it comes to credit, CIBIL score signifies the level of trust that the potential lenders have on you to ensure that you will repay any money that you borrow from them. You may fall anywhere between bad credit and excellent credit. Bad credit translates to a low CIBIL score meaning no lender would be interested in giving out loans to you whereas an excellent credit score makes you lenders’ favourite. Most of the borrowers lie somewhere between these two extremes, with average to good credit scores.
CIBIL Score is a three-digit number ranging from 300 to 900. A score above 600 is considered fair and scores below 600 are considered poor. Bad credit score is a reflection of your past financial failures that still have much impact on your credit profile. It typically means that you have not been able to service your loans properly in the past, have not paid your bills on time or defaulted on a loan or a credit card. So, let us learn more about what causes a bad CIBIL score.
Following reasons may be attributed to a low CIBIL score:
There is a direct connection between a personal loan and CIBIL Score. Higher the CIBIL Score better will be your chances of personal loan approval. Generally, banks ask for a score of 750 and above for personal loans. Since a personal loan is usually unsecured, banks are at a higher risk. In case the borrower is not able to repay the loan, the bank does not have anything to recover the amount except file a suit against the borrower. This is the reason why the CIBIL score holds so much importance in terms of personal loans.
Before you apply for a personal loan, you must improve your CIBIL score. You can take the following steps to repair a broken credit score or to improve your score.
If you have low CIBIL Score and wish to get a personal loan, you can apply for it through our website. Here, you will find various personal loan options from banks that are willing to extend loans to people with below-average credit. The application process is the same as the normal procedure. Follow the steps given below:
Once you fill these details, you will get a call from one of our executives who will guide you through the process. You can ask any questions related to your CIBIL score to know the chances of approval for a particular loan. To be sure about the loan amount, you can use our personal loan EMI calculator and take a smart decision after comparing several values at different rates of interest.
Alternately, you can visit the bank’s website wherein you can enter your details and their executive will call you and guide you through the process. However, here you will not be able to compare the personal loan offers from different banks.
Yes. Your personal loan application may get rejected even if you have a credit score above 600. This is because credit score is not the only thing that the lenders look at when they scrutinize your application. Your monthly income and the current EMIs that you are paying will help the lenders decide whether you are in a position to take up more debt. So, if the bank finds that you have too much debt already, then you may be denied for the personal loan. Other factors that lead to personal loan rejection include an incomplete application form, inadequate documents, unstable employment, low income, etc.
If you get rejected for a personal loan, you can send a new application to another bank immediately. However, an important point to note here is that when you apply for a loan, a hard inquiry is initiated on your account and upon rejection, your credit score takes a hard hit and it drops by at least 6-7 points. This drop is enough to bring you down to a fair scale from an excellent one. If you wait for about 6 months between two loan applications, you would get enough time for the credit score to recover to improve your chances of getting approved. Ask the bank about the reason for such rejection and work on improving the aspect.
At the time of personal loan application, you will have to submit KYC documents such as proof of identity and proof of income. Along with this, you will have to submit proof of your income which may include the last three months’ salary slips, last six months’ bank statement, Form 16, ITR, etc. The following documents are usually accepted for KYC verification-
People with poor credit scores may have to provide some extra documents such as proof of stable employment. However, this is in extreme cases; otherwise, the above documents usually suffice.
Whether you have a bad credit score or an excellent score, the age criteria will be the same as set by the lender. For example, if you seek a personal loan from HDFC Bank, you must fall in the age group of 21-60 years. Whether you have a credit score of 600 or 800, in both the scenarios, you will have to meet the age criteria. Most of the banks extend loans only to people of legal age provided that they have a source of regular income. Different age criteria may be set by different banks so you must check the same before applying.
It usually takes about 7 to 10 days for a personal loan application to get approved and the amount to get transferred into your bank account. Nowadays, a few banks have launched a quick loan approval mechanism under which your loan application is checked and approved within a day and the amount gets transferred within the next 3 days. Mostly, the personal loan is taken to meet a financial emergency so it would not make sense for the process to take too long. This is why banks process personal loan applications much quicker. Moreover, being an unsecured loan, no extra collateral is required thus making the application process simpler.
You can apply for a personal loan even if you do not have a CIBIL Score. The application process would be the same for people who are new to credit. The only difference is that since these applicants do not have a credit score, the bank would find it difficult to assess their creditworthiness. This can lead to a tedious verification process. Also, if you have not started on the credit journey, you may find it difficult to negotiate a better rate of interest on the loan.
Every time you apply for a loan or credit card, you will have to go through the verification process. You cannot skip the verification. Instead, you can take a few steps to improve your chances of approval. Go for a bank with which you already have a relationship. If you have a savings account or fixed deposit with the bank, they would be more willing to extend a loan to you. You can also resort to personal loan alternatives such as loan against property, gold loan, etc. Some banks also give secured personal loans so if you can put something as collateral, you can choose the same.
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