When it comes to securing a personal loan, your credit score plays a crucial role. A credit score is a three-digit number that represents your creditworthiness, indicating the likelihood of you repaying borrowed funds. Lenders use this score to assess the risk associated with lending you money. Therefore, it's essential to understand what credit score you need to qualify for a personal loan.
Credit score requirements for personal loans
While credit score requirements may vary among different lenders, an ideal credit score is generally considered to be around 750 or higher on the CIBIL scale, which ranges from 300 to 900. A higher credit score indicates a lower credit risk and can improve your chances of securing a personal loan with favourable terms, such as lower interest rates and higher loan amounts.
However, having a credit score between 600 and 700 does not necessarily mean you will not be eligible for a personal loan. Some lenders specialise in providing loans to individuals with less-than-ideal credit scores, though the interest rates may be higher.
Generally, most lenders require you to have a minimum CIBIL Score of at least 600 when applying for personal loans. If you have a poor credit score (below 600), you might find it more challenging to qualify for a traditional unsecured personal loan. In such cases, you may need to explore alternatives, such as secured personal loans or loans with a co-signer.
Factors affecting your credit score
Understanding the factors that influence your credit score can help you take steps to improve it. The most significant factors include:
Payment history: Making timely payments on credit cards, loans, and other debts positively impact your credit score. Conversely, late payments or defaults can significantly lower it.
Credit utilisation: This refers to the amount of credit that you're currently using compared to your total available credit. Keeping your credit utilisation below 30% is generally recommended for a healthy credit score.
Length of credit history: The longer you have had credit accounts in good standing, the better it is for your credit score.
Credit mix: A diverse mix of credit accounts, such as credit cards, loans, and mortgages, can have a positive effect on your credit score.
New credit enquiries: Applying for multiple credit accounts within a short period can lower your credit score.
Building a good credit score
If you have a less-than-ideal credit score, do not worry. There are several steps that you can take to build and improve your credit over time:
Pay your bills on time: Consistently making on-time payments is one of the most effective ways to boost your credit score.
Reduce credit card balances: Focus on paying down high credit card balances to lower your credit utilisation ratio.
Avoid opening unnecessary credit accounts: Opening too many new credit accounts can be detrimental to your credit score.
Check your credit report: Regularly review your credit report for errors or inaccuracies and dispute any discrepancies you find.
Bajaj Finserv Credit Pass: Your path to a better credit score
If you are looking to build or improve your credit score, consider the Bajaj Finserv Credit Pass. It is a unique CIBIL-powered toolkit to help individuals enhance their creditworthiness. The Credit Pass offers personalised insights into your credit health in real time, monthly CIBIL Score updates, and interactive tools that you can use as a guide to improve your credit score effectively. By using the advantages provided by the Credit Pass, you can take the right steps to build a strong credit profile, making it easier to qualify for personal loans and other forms of credit in the future.
In conclusion, a good credit score is essential for obtaining a personal loan on favourable terms. While the specific credit score requirements may vary among lenders, aiming for a score of 750 or higher is a prudent goal. By understanding the factors influencing your credit score and adopting responsible credit habits, you can gradually build a solid credit profile. If you need assistance on this journey, the Bajaj Finserv Credit Pass can be your trusted companion, helping you achieve a better credit score and unlock the doors to financial opportunities.
