Are you dreaming of buying a new ride but worried about your CIBIL Score? As a numerical representation of your financial responsibility, your credit score can either open doors to low-interest car loans or present hurdles that demand a detour. If your CIBIL Score is standing in the way of your automotive aspirations, it is time to understand how you can bolster it to improve your loan prospects.
What is credit score and how does it affect my ability to get a car loan?
Your credit score is a three-digit number calculated by credit information companies on the basis of reports sent by banks and financial institutions with whom you have had transactions. Taking into consideration five key factors from your credit history, including your repayment habits, your credit utilisation, the length of your credit history, your credit mix, and your recent applications for new credit, credit bureaus calculate your credit score.
TransUnion CIBIL is India’s oldest and largest credit bureau and the CIBIL Score is often synonymous with credit scores in India. CIBIL Scores range from 300 to 900, with most lenders in agreement that a score of 750 or higher is ideal. When you have a CIBIL Score within the range of 750–900, you are not only more likely to get approved for a car loan, you are also more likely to secure it on favourable terms like lower interest rates and longer tenures. This is because a high CIBIL Score indicates to lenders that you are financially responsible, with a solid history of being reliable with borrowed funds.
On the other hand, with a low CIBIL Score, your application for a car loan basically has a bunch of red flags. Lenders will hesitate to extend funds because your poor credit score reveals you have had trouble with repaying loans in the past, among some other problematic credit behaviours. Even if they do decide to lend to you, it will be on terms that can be so strict that they ultimately increase your financial burden, potentially dragging your score down further.
How to apply for a car loan with CIBIL Score?
Having a respectable CIBIL Score can smooth out the process of applying for a car loan. Here’s a short guide:
- Check your credit score: Getting a snapshot of your creditworthiness before applying for a credit product is always advisable. It helps you figure out whether you should polish up your score before you apply to stand a better chance at being approved and securing better terms.
- Choose the right lender: Lenders have their own unique criteria when it comes to credit scores. Some might approve loans in spite of lower scores, but it might come with a trade-off in the form of higher interest rates or shorter tenures.
- Apply for the loan: Once you have identified the right lender for you, the next step is to apply for the car loan. Note that the lender will look into your CIBIL Score, triggering a hard enquiry on your credit report that will temporarily lower your score. This is a normal part of their evaluation process.
Improving your CIBIL Score for a car loan
Avoid applying for a car loan when your initial CIBIL Score check reveals a poor score. Instead, take the time to improve your score to maximise your chances of approval at favourable terms. Here are some actionable tips that can help you give your score a much-needed boost:
- Pay your bills on time: The most critical factor that affects your credit score is your repayment history. Late or partial payments can dent your score, so make sure you pay your bills on time and in full.
- Reduce your debt burden: It is time to reduce your debt if you are juggling multiple loans and credit cards. Prepaying outstanding debts, especially unsecured loans, can help improve your score.
- Limit your credit card usage: Maxing out your credit cards can lower your score. Try to keep your credit card balances in check, and utilise no more than 30% of your available credit limit.
- Apply for loans in moderation: Too many hard enquiries in a short time can hurt your score. So, apply for new credit only when you need it and space your applications out over time.
- Become an authorised user: Request a trusted family member or friend with good credit to allow you to become an authorised user on their credit card. While you will not be responsible for any bill, their good credit behaviour will help improve your credit score.
- Fix errors on your credit report: By regularly monitoring your credit report, you can promptly identify any errors or discrepancies that might be affecting your score. Report them immediately to the credit bureau to get them corrected and safeguard your score.
It can be overwhelming at times, but it is not impossible to improve your CIBIL Score for a car loan. The Bajaj Finserv Credit Pass can help make this process more streamlined by offering you a personalised dashboard that provides a comprehensive overview of all your credit accounts in one place. You can easily monitor all the factors that influence your score and get real-time insights into your Credit Health Report. Moreover, you benefit from monthly updates to your CIBIL Score so you are always in the know about your credit standing. As for the loan for your dream four-wheeler, you can leverage interactive tools like the Credit Score Simulator and the EMI Calculator to predict the impact of such a credit product on your creditworthiness and plan your EMI obligations, even before you apply. The best part? These benefits are free for the first year when you apply during the limited-time offer period. So, why wait? Sign up today to start shaping your financial future with the Credit Pass, and you will be cruising down the road in your dream car in no time!
