What Is A Low CIBIL Score, And Does It Impact Your Loan Approval?
Applying for a personal loan has become quite easy these days, with banks, NBFCs and leading personal loan apps offering quick and easy loans. However, some applicants are summarily rejected by lenders, and the reason can normally be traced back to a low credit score.
What is a ‘credit score’?
A credit score is a number that a credit rating agency/bureau attributes to an individual in India, based on their credit worthiness. It is calculated based on your income, repayment history of bills or past loans, number of loans applied for till date, payment default record, how many bank accounts you have and how you maintain them, and your age. Each of these factors is assigned a number, so that your credit score is a sum of these.
Most lenders in India, especially banks, consider the CIBIL credit rating bureau’s score when appraising your credit worthiness. CIBIL records the score in your CIBIL Report (also known as the Credit Information Report), which is your credit payment history across loan types and credit institutions. It does not detail out your investments, bank deposits or savings account information.
The CIBIL credit score is a three-digit number between 300 and 950. The higher your credit score or closer to 950, the higher your chances of being approved for institutional funding such as personal loans, home loans, car loans, etc.
Usually, lenders offer loans to applicants with CIBIL credit scores above 750.
Why does the CIBIL score impact your loan approval?
The credit score is a barometer of your credit-worthiness. Simply put, it tells the lender if you are a good risk or a bad one if they were to give you a secured or unsecured loan. It naturally follows that a lender will not view you as an ideal candidate for their loan product if your CIBIL score is lower than 700. A low credit score indicates that you may default on loan payments, which is not a risk any lender is willing to take.
Is the CIBIL credit score the only one lenders check?
Lenders like banks and most NBFCs in India check the CIBIL score before processing the loan application. But leading personal loan apps in India follow the CIBIL score and others generated by prominent Indian credit rating bureaus, apart from their own checks. For instance, the best personal loan apps in India use their own AI-backed algorithms to arrive at an applicant’s credit worthiness – this is a more intuitive, reliable and quicker credit check. Thus, their credit checks are more extensive and more broad-based.
Conclusion
Having a good credit score boosts your chances of getting a secured or unsecured loan, whether you apply to your bank or to the best personal loan app in India.
