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Importance of CIBIL for Loan Approval

As we are all aware, a CIBIL credit score and Credit Information Report (CIR) is an essential requirement by any banking or institution where you intend to apply for an extended line of credit. This credit score of yours is contained in your credit report which is a comprehensive document comprising of information related to your current and past credit activity. The better your credit history, the higher your score will be. On an overall basis, CIBIL credit score and Credit Information Report reflect your credit rating in the potential eyes of any financial institution or bank.

To elaborate further, your CIBIL credit score and Credit Information Report (credit rating) gives banks and financial lenders a quick idea of how reliable you are in fulfilling your debt obligations. Based on your credit score, many financial institutions decide whether to approve your loan or credit card application.

Banks have a standard score requirement of 750 (this is also the minimum score requirement) when reviewing your application because it implies that you have been a low-risk customer who has demonstrated a good track record of repaying loans on time. You stand a good chance of being approved for a loan or credit card with a score of 750 or more.

On the contrary, if you have a low score, banks are reluctant to give you any credit and will most probably reject your application for a loan or credit card. Banks already have this information as they report every credit-related transaction to CIBIL on a monthly basis.

This information includes your previous payment history with regard to your loans and credit cards, total available credit balance, existing loan and credit cards which are active and additional financial information. All of this is taken into consideration when calculating your CIBIL credit score. The biggest factor that makes up your credit score is your repayment history. Even one or two missed or delayed payments can negatively impact your credit score.

What Happens when you Apply for a Loan?

As mentioned earlier, a CIBIL credit score check is undertaken by a bank before lending a loan to a potential customer, this is just a single step of the entire loan approval process. Know the complete process below.

First, you need to fill up a loan application form. This form is available online at the respective banks website or you can physically visit the nearest branch.
One you fill up your details, you need to submit the form to the loan department of the bank.
Now, the bank will contact CIBIL and check your previous financial records through your CIBIL credit score and Credit Information Report (credit rating).
A low credit score and poor financial history will immediately lead to rejection of the loan.
A high credit rating will make you eligible and your application will be put forward based on the documents that you’ve submitted.
Non-eligibility leads to rejection of the application.
Post eligibility being met, the bank will decide to disburse the loan on your name.

79% of the loans that are disbursed, are given to the individuals who have a credit score that is greater than 750.

What do Banks Check while giving Loans?

To begin with, a bank or financial institution will look through your CIBIL report in order to determine the following information:

The bank will scan the Account Section of the report to check if there have been any written off cases reported in the Credit Information Report.

Next, the bank will look to see if there are any payment history defaults. They check if there have been any defaults or previous overdue amount. This information will be available in the Past Due field of the Credit Information Report.

Every bank has a tie up with a particular corporate for extending a line of credit to the salary account holders. Therefore, they look into the respective profile of the company. The banks usually have an approved list to whom to extend the loan to.

The last check is related to your existing equated monthly installments. In case your current EMI exceeds 50% of your monthly salary, the chances of you getting a loan is low.

Minimum and Maximum Score Required for a Personal Loan Approval

A personal loan is a loan taken for the purpose of personal utility. It is an unsecured loan. A personal loan comes with a high rate of interest and can be used to finance personal interests such as a wedding, vacation or house renovation. Unlike other types of loans, you can completely utilise the money in every aspect. There are no restrictions on the consumption of a personal loan as it offers full flexibility.

Since it is an unsecured loan, there is no such collateral required to guarantee the risk with any assets. The bank or credit lender bears the entire risk in the case of a personal loan.

There is no fixed minimum score required to apply for a loan. The higher your score, the better your chances are of your loan application being approved, as the bank is lending you the amount purely on the basis of your high credit score. Typically, banks and credit institutions look for a score of 750 or above in order to further process your loan application. It is possible to get a loan with a score less than 750, but you might face harsher loan conditions such as a higher interest rate, smaller loan amount, shorter repayment period and more documentation.

If you apply with a poor score, there is a high chance that your application will be rejected. Always remember that if you have a lower credit score you will pay a higher interest rate and having a higher credit score will get you a lower interest rate and each rejection negatively impacts your credit score.

Interest rates for a personal loan depends upon the following factors:

Loan amount compared to your income and loan tenure.
Credit profile which is determined from the Credit Report.
Repayment history and your company profile.

Mandatory documents required for a personal loan approval:

Latest Credit Score and Credit Information Report.
Bank Statement and Income Statement.
KYC documents like identity, signature and address proof.
Last 3 years IT return for self-employed.

Minimum and Maximum Score Required for an Auto Loan Approval

An auto loan is a loan taken to finance the purchase of a vehicle namely a car or bike. You can take an auto loan to buy a vehicle for personal or business purposes. The repayment is based on your income and other requirements. Also, an advantage is that you get up to 90% of the invoice value of the vehicle as a loan. There is no minimum score requirement, but it is recommended that you have a score of 700 or more to avail an auto loan. Interest rates for an auto loan depends upon the following factors.

Your income and current CTC.
Credit history.
Current loan repayments. Mandatory documents required for an auto loan:
Latest Credit Score and Credit Information Report.
Bank Statement and Income Statement.
KYC documents like identity, signature and address proof
Registration papers from the RTO

Minimum and Maximum Score Required for an Education Loan Approval

An education loan is a financial aid undertaken to finance the higher education expenses of the students. Students with excellent academic record are offered financial help to study in renowned institutes in India and abroad. Eligibility for an educational loan:

The applicant must be a resident of India.
He/she must have a confirmed admission in recognised educational institutes in India or abroad.
The age of the applicant must fall within the bracket of 18 to 35 years during loan application.
The applicant must be undergoing a graduate or postgraduate degree or a PG diploma.
The applicant should have a secured admission in a college or university affiliated by UGC/AICTE/Govt. etc.
Applicant pursuing full-time courses need to have a co-applicant who can be either parent/guardian or spouse/parent-in-law. Mandatory documents required for an education loan:
Duly filled and signed application form with affixed photographs.
2 photographs of passport size.
Copy of exam mark sheets of 10th/12th or latest education certificate.
Statement of course expenses/cost of study.
Aadhaar Card and Pan Card of the student and Parent/ Guardian.
Age, Identity and residence proof. Income proof can include the following documents:
Most recent salary slips or Form 16 of the parent/guardian/co-borrower
6 months bank statement of the borrower or updated passbook of bank
Updated ITR (Income Tax Return with income computation) of 2 years or IT assessment order of last 2 years of parent/co-borrower/guardian
Documents stating the assets and liabilities of the parent/co-borrower/guardian

Minimum and Maximum Score Required for a Home Loan Approval

You can always apply for a loan to purchase your dream home. This is a home loan. You can also take a loan against your current property. Up to 80-85% of the cost of the property is given as a loan. The repayment tenure varies from 5 years to 30 years. The interest rates depend upon a lot of factors such as the city, location, existing property rates, etc. Mandatory documents required for a house loan:

Latest Credit Score and Credit Information Report.
Bank Statement and Income statement.
KYC documents like identity, signature and address proof.
Property papers along with the last three years ITR.

Minimum and Maximum Score Required for a Business Loan Approval

A business loan is a loan taken to finance your business, it also applies to loans undertaken by corporates to meet their financial requirements. Just as there is a CIBIL credit score and Credit Information Report (CIR) for individuals, CIBIL produces the Company Credit Report (CCR). A company credit report is a record of a company's credit history. The interest rate depends upon a lot of parameters based upon the strength, size, existence and type of company etc. List of common documents required for a business loan:

Application Form: Complete loan application form with one passport size photograph.
Valid Proof of Applicant's Identity: Passport, Photo PAN card, Voter’s identity card, Driving license and MAPIN card.
Proof of Residence: Ration card Tel/ Lease agreement/ Electricity Bill/ Passport/Trade license /Sales Tax certificate.
Proof of Age: Passport, Photo PAN card, Voter’s identity card.
Financial Documents: Copies of IT returns for the last two years along with the latest Bank statements for 6 months and Profit & Loss and balance sheet for last two years audited by a C.A.
Self Employed (Private Ltd. Co. and Partnership Firms): P & L Copies of IT returns for the last two years and Profit & Loss and balance sheet for last two years audited by a chartered accountant.

Self Employed Individuals - Professionals: Copies of IT returns for the last two years and Bank statements for last 6 months and – Professionals: Profit & Loss and balance sheet for last two years audited by a chartered accountant.

Self Employed Individuals - Non Professionals: Profit & Loss and balance sheet for last two years audited by a chartered accountant and Copies of IT returns for the last two years and Bank statements.

FAQs on Importance of CIBIL for Loan Approval

What if I don’t have a credit history because I’ve never taken a loan or credit card?

In such a situation, the CIBIL report will contain a score that says NA (not applicable) or NH (no history) and lenders will not instantly provide you with a loan unless you’re either able to negotiate with them or are able to take a secured loan (or secured credit card) by leveraging a fixed deposit or property and start building your credit score.

Will my CIBIL report be affected if I’ve stood as guarantor on a defaulted loan?

A guarantor can be considered partly (if not financially) liable to the lender in case a default happens. If the same person was to stand as guarantor for another loan, the bank will deem him untrustworthy and won’t consider him as a guarantor.

What is credit repair?

Credit repair involves rebuilding your credit health to a level where you become eligible for loans. People typically need credit repair services to help them improve their credit score and undo the damage done to their credit health because of faulty financial behaviour in the past.

Is a credit score of 800 good?

Yes. In fact, a credit score of 800 is very good! Only a small percentage of people reach, and consistently maintain, such a high credit score.

What is the best credit score to have?

In India, the best credit score to have is one that is 750 or above. The three credit rating agencies that operate in India - CIBIL, Equifax, Experian and CRIF High Mark - issue a three digit credit score to individuals that is between 300 and 900. When you have a high score of 750 or above, banks are reassured that you have a good repayment history and are a low-risk customer.