What credit score do I need to qualify for a personal loan?
A credit score is a determining factor when it comes to an individual’s creditworthiness. It is considered by lenders whenever an applicant applies for a home loan, personal loan, or other credit products.
A personal loan is an unsecured loan that is offered by lenders to borrowers who have short- or medium-term financial obligations. A personal loan is often used by borrowers to cover for financial needs of a vacation, debt repayment, medical expenses, wedding-related expenses, etc.
Since a personal loan is an unsecured loan, one does not need to offer any collateral to the lender. However, lenders usually check the credit health of a borrower to make sure that he/she has the ability to repay the personal loan. Apart from the eligibility criteria that a borrower must fulfill, he/she should also possess a good credit score while making a personal loan application. So, how much credit score is ideal for a personal loan? Read on to find out.
How much credit score is needed for a personal loan?
A credit score is measured in points and generally falls within a range of 300 and 900. One should ideally have a credit score closer to 900 since it helps in getting better deals on personal loans. A credit score of 750 and above is ideal for getting a personal loan from any lender in India. One can easily get a personal loan with a credit score of 750 and above. As per statistics, nearly 80% of loan applications get approved for credit scores above 750.
Lenders always try to gauge the applicant’s ability to repay the personal loan before approving a loan application. An individual’s credit score helps a lender in assessing the risk of default involved. Those who have a high score are often considered as being responsible borrowers who pay credit card bills and EMIs on time. A lower credit score heightens the risk of default on a loan.
What are the factors affecting credit scores?
There are various factors that affect credit scores. Listed here are some of the important ones:
- Factors that affect credit scores positively
- Timely payments of credit card bills.
- Timely loan EMI payments.
- Paying the entire outstanding balance instead of just minimum due.
- Factors that affect credit scores negatively
- Non-payment or late credit card bill payments and loan EMIs.
- Fully using credit card limits or sings more than 75% of available limit consistently.
- Paying only minimum credit card dues instead of full bill payments.
- Using multiple lines of credit, most of which are unsecured.
What should I know before applying for a personal loan?
Before applying for a personal loan, one should go through the below-mentioned points:
- Check your credit score
It is important to learn about your credit health before applying for a personal loan. You can check your credit score online to get a fair idea of your standing in terms of credit history and repayment track record. If your credit score is low, you can begin working on it to increase it by implementing the right measures.
- Get your credit report for free
To claim your free credit report, you can visit the credit bureau’s website. Alternatively, you can also access basic credit information for free on CreditMantri. The Reserve Bank of India (RBI) has made it mandatory for all credit bureaus across the country to provide one free credit report per calendar year. Additionally, you can also purchase your detailed credit report from the bureau.
- Search and shortlist lenders
If you have decided to take a personal loan, you must look for lenders who offer good deals on loans. You can browse through various deals and select one that is most suited to your needs. Due to high competition, banks and lenders offer competitive interest rates on personal loans. You can check out some of the best deals with maximum benefits with regards to interest rate and loan tenure combined with fringe benefits.
- Do not apply with multiple lenders at the same time
Once you have shortlisted lenders who offer loans suitable to your needs, you can begin applying to a few lenders. Be careful about making multiple applications since it can trigger multiple hard inquiries and impact your credit score. Multiple applications also reflect credit hunger on the applicant’s part and this is viewed negatively by lenders.
In case your personal loan application has been rejected at any time in the past, it may most likely be due to a low credit score. To get a personal loan easily, you must have a consistently high credit score. Banks and lenders generally prefer credit scores above 750 while offering personal loans at low interest rates and other flexibilities like longer loan tenure.