Credit Score for Personal Loan
A credit score is one of the most crucial factors lenders look at when you apply for a personal loan, home loan, or any other credit instrument. For those unaware, a credit score is a 3-digit rating that measures your creditworthiness and acts as an indication to your intent and ability to repay the borrowed loan amount. Although credit score ranges between 300-900, a credit score is considered good for personal loan application when it’s above 700-750.
A personal loan is unsecured credit that is availed for a short to medium-term period for a myriad of reasons like wedding, travel, higher education, debt consolidation, medical emergency, and more. Since it is an unsecured loan by nature, you don’t need to offer a collateral to avail it. For the sheer uncertainty of such loans, lenders prefer applicants with sound credit health and history to rule out the chances of loan default.
Apart from the eligibility criteria laid down by the lender, it’s extremely important you have the ideal credit score to get your personal loan application approved. Let’s understand what is considered a good credit score for personal loan!
What is a Good Credit Score for Personal Loan Approval?
As mentioned, a credit score ranges from 300 to 900 with 300 being the lowest and 900 being the highest; you should try to get as close as to 900 for hassle-free personal loan approval. A score of 750 and above is great to get you low interest rate deals on personal loans and is considered creditworthy by most lenders.
According to CIBIL Data published in Economic Times, 80% or more of the personal loan applications get approved when the credit score is more than 750. Lenders need a reassurance that you’re a responsible and low-risk borrower and are sincere with credit repayments, as demonstrated in your credit profile.
How Your Credit Score Affects Your Personal Loan Application
Your credit score is one of the most significant factors affecting the eligibility and outcome of your personal loan application. If you’re unsure of how a credit score can be so crucial, check your credit score here for free and know if you’re eligible for a pre-qualified personal loan offer. Here are 4 ways your credit score impacts your personal loan journey
- Catalyst in Loan Approval – When you apply for a personal loan, the lenders give supreme importance to your credit score. Of course, there are other factors taken into consideration as well such as, income and employment details but a high credit score is weighed above all. Make sure you maintain your credit score between 750 and 900 for a trouble-free personal loan approval.
- Repayment History is Crucial – One of the parameters that all lenders assess while evaluating your personal loan application is your previous repayment history to ascertain the kind of borrower you are. Your credit score is the index of your repayment history as a good credit score means you’ve been a sincere borrower in the past.
- Decider of Processing Time & Rate of Interest – Though you can easily get a personal loan approval with a high credit score, it’s not entirely impossible to avail a personal loan on low credit score. It’s just that the loan processing time increases since the lenders put in some additional checks while evaluating your loan application. Also, be prepared to be charged a higher rate of interest than usual with a low credit score.
Errors in Credit Report – Sometimes, your credit score can stoop down because of errors in your credit report which in turn impact the loan application result. Make sure your credit report is free of such errors to have a smooth experience
What Should I Absolutely Do Before Applying for a Personal Loan?
Besides understanding how a personal loan application works and mapping the eligibility criteria, here are a few things you should absolutely do before you set to apply for a personal loan:
- Check Your Credit Score – This is the most critical of all and for the right reasons – you must absolutely check your credit score. If you understand the importance of credit score and its impact on your personal loan application, this will leave you better prepared for the outcome of your application. Knowing where you stand financially before applying for a loan will also give you time to improve it, if it is low. It is also advised to access a detailed copy of your credit report to analyze it well in time.
- Research & Compare Lenders – Once you’ve set your mind on taking a personal loan, you’d need to get out there (not physically) and research and shortlist the lenders that are offering:
- good deals on personal loan interest rates,
- relaxed eligibility criterion that meets your requirements,
- flexible repayment tenor option,
- quicker approval time & faster disbursement of loan
Based on the research, you can compare and shortlist the lenders that suit your requirements.
- Apply with Selected Lenders – Once you’ve done your homework, apply only with the selected lender that matches your requirement. You should be careful and selective in this regard as applying at multiple lenders will only trigger a lot of hard enquiries which will affect your credit score in a negative manner.
How do I Improve My Credit Score?
If your credit score is low and you need to know how to improve it, follow the below-mentioned hacks:
- Limit Credit Utilization – Always make sure you never exceed the credit utilization limit available to you. Spending up to 30% of the available credit limit is a healthy way to bring the credit utilization down and keep the credit score up.
- Make Timely Credit Repayments – If you’ve active loan or credit card accounts, make sure you are paying all the dues on time and in full. This will increase your credit score significantly.
- Fix your Credit Report for Errors – Make sure you get a detailed copy of your credit report every few months and scan it carefully for errors to get them fixed in time, if any.
Knowing these credit score hacks for personal loan approval come in handy when you’re prepping up to apply. The best way to know, improve, and maintain a good credit score is by checking your credit score regularly to have a better control over your financial standing.
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