Before taking advantage of personal finance, the most important factor that you need to consider is your creditworthiness. Does the term mean anything to you? Creditworthiness is determined by your credit score which is a critical factor in your Personal loan application process. Are you wondering how? Keep reading to find out.
What is a credit score?
The credit score is a numerical value calculated by the credit bureau or TransUnion CIBIL Limited. The three-digit number is based on your records that describe your repayment habits as a borrower. This value is between 300 and 900. The higher the value, the better your CIBIL score. Hence, we can say that the credit score is a reflection of your credit profile.
In addition, the credit score also helps lenders estimate the potential risk of lending to a borrower. It shows the lender that you are, in fact, responsible and financially stable to pay off the loan on time. So if you are about to apply for a personal loan online, your credit score is a number you just can’t ignore.
Now, let’s talk about the ideal credit score for availing an unsecured loan. While the value can be anywhere between 300 and 900, the ideal credit score is 750+. A higher credit score can make it easier to obtain unsecured credit from a bank or other financial institution.
How Does Your Credit Score Affect Your Personal Loan Application?
A credit score of less than 600 may result in the rejection of your loan application as it is considered inadequate for benefiting personal finance. However, a low CIBIL score may affect your Personal loan approval.
The interest rate
Did you know that your credit score can determine the interest rate offered? Lenders offer a lower interest rate to borrowers who have a healthy credit report because it demonstrates credibility and stability. Therefore, even if you manage to get a Personal loan sanctioned by a low credit score, the interest rate offered by your lender will increase. The lenders do this to ensure that a larger amount of the loan is repaid quickly by the borrower.
The loan amount
If you need a large sum of money for a health emergency, a wedding, a house, you should keep in mind that the lender will only sanction the desired amount if you have a high credit rating. This is because the loan amount is estimated based on several factors and the credit rating plays a key role. So a higher score will earn you a higher amount of money.
Another benefit of having a high CIBIL score is that you can have an easier and hassle-free borrowing experience. When requesting Personal loan, the documentation process plays an important role because the financial institution needs proof of your credibility. Therefore, having a good credit history can prove your credibility with the lender which means that you will need minimal documentation and your loan will be approved easily.
A first time borrower with a high credit score can easily get an unsecured loan as there is not much reason for the lender to decline. On the other hand, a borrower with a low credit rating who has a history of delinquent loans will find it very difficult to be. eligible for a Personal loan. Lenders also have eligibility criteria in place which always include a decent CIBIL score. These criteria may differ for smaller and larger loans, so you may be able to qualify for a small amount but not be eligible for a larger loan.
At the end of the line
If you are about to apply for a personal loan onlinethen you need to check your credit score as it could be the biggest determinant of your loan approval process. Also, if your credit score is less than ideal, you should try to improve it before you qualify for any type of loan.