• Investment
  • Car
  • Bike
  • Taxi
  • Term Life
  • Health
  • Travel

CIBIL Score for Personal Loan

For an average salaried millennial in India, no form of compromise is accepted in terms of their standard of living. At times, this behaviour often leads to inadequate savings when required. When a drastic situation arises for which you don’t have enough money, you may need to take a quick loan to meet those expenses. As an individual, one can simply apply for a personal loan from any banking institution, or preferably from the same bank in which the salary account is held. Personal loans can be taken for many purposes and are provided by every bank in India. Some banks even offer loans for a vacation or renovating your house. A person can borrow a substantial amount and do whatever they intend to with the money, as long as it is within the legal framework. The first step for any individual who wants to avail a personal loan is to consider their eligibility. A few primary parameters include a minimum age of 21, a regular source of salaried income and previous credit history.

The last criteria, which refers to a credit history, implies that you need to have a good CIBIL score in order to successfully avail a personal loan. (You need to have a good CIBIL score for your personal loan application to be approved).

Understanding CIBIL and CIBIL Score

CIBIL is an acronym for Credit Bureau Information (India) Limited. It is India’s first Credit Information Company (CIC) founded in August 2000. CIBIL plays an important role in India’s financial system by helping banking institutions better manage their business and helping customers secure credit on a sound and secure basis.

With respect to an individual, it collects and maintains records of payments regarding loans and credit cards. These records are submitted to TransUnion CIBIL by the respective banks and credit institutions on a regular basis. This information is utilised to create Credit Information Reports (CIR) and credit scores which contains the credit history of commercial and consumer borrowers. A CIR assists credit institutions to evaluate and approve loan applications.

Note: Credit Bureau Information (India) Limited is the former credentials of the company, the new establishment is recognised by the name of TransUnion CIBIL Limited. It is licensed by the RBI and governed by the Credit Information Companies Regulation Act, 2005.

Minimum CIBIL Score Required for Personal Loan

As mentioned above, the CIR maintains a record of your payment history of loans and credit cards taken from all banks and other Non-Banking Financial Institutions (NBFCs). Based on this credit history, a ‘Credit Score’ is generated which is called the ‘CIBIL Score’. It is a 3-digit number ranging from 300-900 which highly determines an individual's credit worthiness and the bank’s decision whether a personal loan application should be approved or not. This is the first screening criterion applied by banks and financial institutions when reviewing your loan application or credit card application.

The minimum score required for a personal loan application is 750. The credit score ranges between 300-900, where the former denotes a low score with lesser chances of application approval while the latter is a high score which implies that the applicant is creditworthy and the personal loan application is generally approved with ease. For undertaking a personal loan, a good CIBIL score is an absolute must because of the very nature of such loans - they are unsecured, the bank doesn’t really know what the borrower is going to do with the money. A good credit score ensures that the borrower has a stable credit history when it comes to repaying loans.

Factors that Determine a Good Credit Score

A credit score can be further evaluated on the basis of credit history - be it positive or negative.

Positive factors include:

  • Meeting timely payments for your credit card.
  • Paying your EMIs (Equated Monthly Installment) on time.
  • Completing the full payment of the borrowed amount including the interest charged.

Negative factors include:

  • Overspending the limit of your credit card more than once
  • Failure to pay your EMIs on the due date
  • Holding more than one line of unsecured credit or multiple credit cards
  • Making half or partial payments on the credit card bills

Note: An EMI is the amount of money that you need to pay to the bank every month to repay your loan. This EMI is basically the combination of the principal and the interest part of the loan.

Things to Consider Before Applying for a Personal Loan

  • As mentioned before that a CIBIL score is important for acquiring a personal loan, you should take the first step yourself by finding out what your CIBIL score is. If the bank’s process requests for your score, it can have a negative effect.

  • A standard score of 750 is considered as the minimum for application of a personal loan, if your score is lower it is best that you do not apply for a loan as it can further reduce your score post rejection.

  • Avoid multiple applications within the same time period as too many applications can lead to many rejections again lowering your credit score.

  • Always leave room for negotiating a lower rate of interest. Consider this simple situation, if your score is 750 plus, you can utilise this fact as a leverage to bargain with banks for lower interest rates or better loan terms.

How to Ensure a Successful Loan Application?

Once you have successfully initiated the process for a personal loan application, the bank automatically checks your eligibility on the basis of age and regular salaried income. Post this, the banks check your credit score. The loan amount will be given only on the basis of this 3-digit credit score. If your credit score is below 300, there is a higher chance that your loan application might be rejected or you might get the loan at a very high interest rate. But, if your credit score is above 750, you can easily avail a loan along with a position to set your own terms and conditions with respect to loan payment and EMI rates. Always keep in mind that you must ensure that your credit score is high at all times.

You can keep a track of the following steps mentioned below to ensure a high credit rating:

  • Credit Card Balance: Keep all of your credit card’s balance of payments in check. Make sure the monthly bills and EMIs are paid on time without any delays and with full interest on the principal amount borrowed.
  • If you use multiple credit cards, it is better to clear off all minimum balances to a single card as multiple cards with outstanding balances can upset your CIBIL score.
  • Ensure that your last or recent loan was paid off successfully and is duly noted in your credit report. This enables a creditor to know that you are a creditworthy customer.
  • Always read through all the terms and conditions before applying for a personal loan.
  • For an easier way to pay your credit bills on time, you can automate a Standing Instruction (SI) to your bank to pay off the outstanding amount on a monthly basis through internet banking.
  • Avoid taking cash advances and withdrawals from your credit card as it affects your credit score. Also, cash withdrawals from a credit card are charged way more than normal transactions.
  • Check your CIBIL score and CIR regularly. If any discrepancies are mentioned in the credit report, make sure that it is rectified immediately before applying for a personal loan or credit card.

What if your CIBIL Score is Bad?

There is no reason to panic your heart out if your CIBIL score is less than 300; there are always steps to rectify it. It's not the end of the world for you either.

  • As a first step, identify the reason why your credit card score is low. It could be because you have been a defaulter previously or have missed a borrowed repayment.
  • You could have missed out on any of your EMIs and credit card payments. Make sure not to repeat the same.
  • Applied for too many credit cards at the same time and got rejected. Apply for a single card once you have reached a score of 750 and then apply for additional cards.
  • Avoid applying for another loan as soon as the previous loan has been paid off. This habit will indicate to the bank that you have a poor financial capacity.
  • Do not overspend your credit limit more than 75% on a regular basis.

What if your CIBIL Score is Non-Existent?

Yes, this situation is applicable to individuals who have never applied for a loan or credit card. This means that they don’t have any credit history, hence CIBIL is unable to generate a particular CIR or CIBIL score. In order to build your CIBIL score from scratch, you can undertake the following methods.

  • Buy a small product such as a smartphone with an interest free EMI option or purchase something else with a secured loan such as a bike or television. Many ecommerce sites allow the option of an interest free EMI option. A secured loan will help you build a good CIBIL score.
  • Apply for a credit card form a bank where you have held a salary account for more than 6 months. This proves your regular source of income and trustworthiness of your financial stability.
  • Many banks offer a facility where an individual can open a Fixed Deposit (FD) and then avail a credit card.
  • Working at a company with a prime star credit rating from S&P, Moody’s or Fitch Ratings can enable you to get a credit card easier as these companies usually have tie-ups with major banking institutions.

Apart from the steps mentioned above, if you can manage your loans and money responsibly, you will automatically maintain a good CIBIL score.

FAQs on CIBIL Score for Personal Loan

What is a CIBIL score?

A CIBIL score is a 3-digit number ranging from 300-900 which highly determines an individual's credit worthiness and the bank’s decision whether a personal loan application should be approved or not.

What is the full form of CIBIL?

CIBIL is an acronym for Credit Bureau Information (India) Limited. It is India’s first Credit Information Company (CIC) founded in August 2000. The current name of CIBIL is TransUnion CIBIL Limited.

Having a high CIBIL score can get you a lower rate of interest?

Yes, if you have a CIBIL score of 900, you can use this as a bargaining point to gain better terms and conditions when applying in the bank.

What is the minimum CIBIL score required for a personal loan?

The minimum CIBIL score for a personal loan is generally 750.

How can you check your CIBIL score?

You can get your CIBIL score and CIR from the official website of CIBIL cibil.com/freecibilscore for a nominal fee.

Is it possible to get a loan with no CIBIL Score?

While it is possible to get a loan without CIBIL score, the rules associated with it would be more stringent. A loan without CIBIL check can result in high interest rates being charged on the loan amount and/or the lender insisting that the applicant place a collateral against the line of credit. Some financial institutions will look at whether the applicant's income will suffice or not in repaying the debt. If it does then the lender may be willing to extend the loan without CIBIL verification. If none of the options work, the individual can apply for a joint loan by including either parents or spouse if they hold a good CIBIL score.