Loans have become a way of life. These days, most people avail of a loan to fulfil life's needs. Buying a car sees one applying for a car loan and buying a home sees one availing of a home loan. For other expenses, such as a child's wedding or education, individuals avail of a personal loan to fulfil their life's obligations. Loans allow borrowers to fulfil their responsibilities and afford a comfortable life without feeling burdened. They allow borrowers to keep their savings safe for a rainy day. It is therefore not very surprising that the number of people who apply for loans is increasing with each passing year. Unfortunately, not everyone who applies for a loan gets one. Lenders grant loans only to those who can repay the loan money on time. The question is how do lenders decide who can repay a loan and who can't?
Lenders judge a borrower's loan application against various factors, such as the borrower's age, income, employment status, the number of loans they already have, etc. One of the parameters that allow lenders to gauge a borrower's creditworthiness is their ideal CIBIL score or credit score. Lenders in India work with different credit information bureaus to know about a borrower's credit health and repayment capacity. TransUnion CIBIL is the most popular credit information bureau in India and the credit score it assigns borrowers is known as the CIBIL score. The CIBIL score is a three-digit number between 300 and 900 that indicates a borrower's creditworthiness and repayment capacity. TransUnion CIBIL considers various factors while deciding a borrower's CIBIL score, such as their past repayment behaviour, credit exposure or credit utilization ratio, credit mix, the age of their credit history, how dependent they are on credit, etc. Let us understand the importance of credit score and a credit score check in the loan application process.
Lenders check a borrower's credit score to assess the risk involved for them in lending money to the borrower and based on the level of risk involved, lenders decide the terms and conditions of the loan. Borrowers whose credit score ranges between 750 and 900 are people who have never defaulted on loan repayment in the past. Their attitude towards credit usage and repayment are serious and therefore, there is not much risk involved for the lender in lending money to such borrowers. On the other hand, if a borrower's CIBIL score is below 650, the lender has defaulted on EMI and credit card payments in the past and therefore, the risk involved in lending money to such borrowers is high. When such borrowers apply for a loan, lenders either reject their loan application or offer a loan at a high rate of interest to make up for the risk involved.
So, what is the minimum CIBIL score for a loan in India? What should be your free CIBIL score if you want to get approved for a loan quickly? If you want your loan application to meet with quick approval and you want to avail of the loan on lucrative terms and conditions, such as low-interest rates and long repayment tenor, make sure your CIBIL score is at least 750. If your CIBIL score is between 700 and 750, your application will get approved. However, your lender may charge you a higher rate or interest. If your credit score is below 700, work on improving it first and then apply for a loan.
Your credit score says a lot about your financial health and the way you handle money. Therefore, make it a point to keep your CIBIL check clean and your credit score excellent.
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