Reasons to Know Why Your CIBIL Score is Important Before Applying for a Personal Loan!
When availing a loan or an advance, your credit score is subjected to a quick check. Whether it is an individual borrower or a business seeking financing, the credit score holds critical importance. It is a 3-digit number that is assigned to every borrowing individual or entity based on their borrowing history and repayment behaviour. This score is assigned by dedicated credit bureaus to whom all the lenders report their loan accounts. CIBIL is one such credit bureau, and the score assigned by them is known as the CIBIL score, which often gains weightage above other bureaus in case of individual borrowing. When you apply for an unsecured loan, like an instant personal loan, your CIBIL score matters a lot.
There are many reasons why lenders rely on this credit score to approve or reject a loan. They also use this credit score to determine the risk associated with a particular lender and the interest rate that they would levy. Below are some of the reasons that make credit score very important for availing an instant money loan.
Top Reasons Why Credit Score is Important for Availing a Personal Loan
1. It forms a part of personal loan eligibility criteria
When applying an instant personal loan, you would need to meet a minimum credit score as a mandatory eligibility requirement specified by the lender. As personal loans are unsecured advances, credit score forms the base for determining the borrower’s creditworthiness. As per this, the overall chances of your loan approval hinge on the fulfilment of this minimum threshold credit score.
Ideally, for availing an instant personal loan, you need to hold a high credit score. This score is an indication of a good and reliable creditworthiness and instils in the lender a confidence that the borrower would be able to manage the loan well. With some personal loan apps, such a minimum threshold may not be a mandatory requirement though. However, in that case too, the lender will send a credit score enquiry before proceeding to process the application. It is thus always useful to check your credit score before applying for the loan.
2. It reflects the individual’s credit history
A credit score is a numeric value assigned to each individual based on their credit history compilation. This history is a record of their past credit behaviour, which can include a host of factors, like the total amount of credit they availed as per their financial standing, the repayments they have made as per schedule, the total credit mix availed, pattern of financing, the credit utilisation, and much more.
As these factors are crucial and determine the risk associated with a borrowing profile, a well-built credit history can mean significant weightage to the chances of fast approval of your instant personal loan. In fact, this history can form the basis of all your future credit availabilities.
3. Your personal loan interest rate is affected by credit score
As already mentioned, the credit score you hold defines the risk associated with your borrowing profile. And since the interest rate on the loan is a direct reflection of this risk, credit score can have a significant influence on the final interest rate that the lender will levy.
For personal loans, if you have a high credit score, you hold the leverage to negotiate for a better interest rate. Along with the interest rate, you can also negotiate for other favourable terms on the advance that would make managing the loan convenient. So, before applying for an instant money loan, make sure to improve your credit score.
4. Lenders may decide the loan amount to lend as per credit score
Since credit score determines your borrowing capacity, the lender you have applied to may also base their loan amount approval based on this score. In case you are not eligible for the loan amount you requested, the lender may send you a counter offer for the eligible loan amount based on your credit score.
Thus, it is ideal that you check your loan eligibility before applying for your instant personal loan. You can do so with the help of a personal loan eligibility calculator available online.
With the right credit score in place, you may also expect dedicated instant personal loan offers to come your way. These offers can be customised to suit all your borrowing requirements, right from the loan amount to tenure to interest rate. It is thus best that you check your credit score before applying for the advance. If you hold a low score, you may take some necessary steps to improve your credit score.