CIBIL Score for Personal Loan

In the Indian financial market, one’s CIBIL score is crucial in determining one’s eligibility to avail of loans, especially unsecured ones. Since it is essentially a reflection of an individual’s borrowing history, lenders use it as a means to evaluate the applicant’s creditworthiness and repayment behavior.

A recently conducted study on 1,000 individuals across 7 Indian states showed that almost 68% of the participants were unaware of their credit scores. This lack of information about the CIBIL score for a personal loan, or how to improve it, can severely hamper the chances of approval.

Here’s how one can improve his/her CIBIL score before initiating a loan application.

Ways to improve CIBIL score for a personal loan

Make timely payments on existing dues

Financial discipline when repaying existing dues is crucial to improving an individual’s credit score. Missing or delaying the payment of even a single EMI can severely affect the CIBIL score and can also attract penalties accrued on the due amount.

Avoid multiple credit applications

A simple way to improve your personal credit score is to avoid making multiple credit applications. Such requests create hard inquiries on the credit report, which can stay for up to two years. Numerous hard inquiries within a short span negatively impact your credit score and lead to the lender rejecting your application.

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Limit credit utilisation

The percentage of credit utilized out of the total limit available referred to as the credit utilization ratio carries a 25% weightage when determining a credit score. Keeping credit utilization between 30-40% is usually considered a good practice.

Diversify types of credits availed

Avail a balanced mix of secured and unsecured loans to diversify your credit portfolio. A healthy combination of short- and long-term loans should help improve the credit history and make it easier to obtain personal loans.

Request lender to increase credit limit

Over-utilising the available credit limit carries the risk of you being categorized as a high-risk borrower since the chance of defaulting on payments also increases. A wise move will be requesting the lender to increase the credit limit before planning additional spending, which should help improve your CIBIL score.

Track credit report and correct discrepancies

Make sure to check the credit score regularly for any errors and inconsistencies. Since it reflects past credit behavior, a record of debt repaid on agreed terms increases your creditworthiness and improves the chances of securing a loan.

Check FOIR

Fixed Obligations to Income ratio is a reflection of the disposable income of an individual. Higher FOIR denotes more liabilities, leading to several lenders refusing a new loan.

It is recommended to keep the FOIR below 50%.

Patiently build a credit score

Finally, understand that credit scores do not improve drastically overnight and instead require consistent efforts. Be patient, monitor the credit report, pay bills in full on or before the due date and maintain financial discipline. Over time, your CIBIL score for personal loan will improve.

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While such measures help you improve your CIBIL score, you must keep an eye on the CIBIL report. Doing so will minimize the chances of faulty information in the report which may affect your score negatively.

How to download CIBIL report?

Individuals can download their CIBIL report for verification and correction of discrepancies if any. Follow these steps for the same –

  1. Open the official TransUnion CIBIL website on your computer and click on the ‘Get yours now’ button in the top right corner. Fill in details like name, Date of Birth, contact details, area code, government-issued identity details, etc.
  2. Next, create and verify your login credentials to receive OTP on your registered mobile number. Enter the OTP to authenticate your account and download the CIBIL report.

These simple tips can help individuals discipline their finances and improve their CIBIL score.

Since the CIBIL score for a personal loan is one of the most important factors, maintaining a decent score can easily help individuals secure a loan. Applicants should check their credit report and utilize the tips mentioned above to improve it before making a personal loan agreement.