When you apply for a personal loan, one of the most important factors lenders consider is your credit score. A credit score is a three-digit number that reflects your creditworthiness based on your credit history. The higher your credit score, the more likely you will get a personal loans at a lower interest rate.
In India, the most widely used credit score for personal loans applications is the CIBIL score. The CIBIL score ranges from 300 to 900, with 900 being the highest possible CIBIL score for a personal loans. Most reputed lending institutions demand a minimum CIBIL score of 700 for a personal loans.
However, the average CIBIL score for personal loan can vary depending on several factors, such as the lender’s requirements, the loan amount, and the borrower’s credit history.
In this article, we will look at the average credit score for a personal loans in India and how you can use a personal loans EMI calculator to estimate your monthly payments.
What Is A Credit Score For a Personal Loan?
In the case of a personal loans, a credit score helps lenders determine the likelihood of the borrower paying back the loan on schedule.
Categories of Credit Scores
In India, the Reserve Bank of India (RBI) has licensed four major credit information companies that offer credit scores. These companies include TransUnion CIBIL, Experian, Equifax, and CRIF Highmark.
Credit scores range from 300 to 900. The higher the score, the better the creditworthiness of the borrower. Credit scores are typically categorized as follows:
- No Credit Score: Usually visible as NA/NH, i.e., “Not Applicable” or “No History”, and indicates that the borrower has no credit history.
- Poor Credit Score: A score below 550 is considered poor.
- Average Credit Score: A score between 550 and 650 is considered average.
- Good Credit Score: A score between 651 and 739 is considered good.
- Very Good Credit Score: A score between 700 and 799 is considered a very good credit score.
- Excellent Credit Score: A score above 800 is considered an excellent credit score.
Factors That Affect Your Credit Score
Your credit score is affected by various factors, some of which are within your control and others that are not. Here are some of the factors that can impact your credit score:
Your payment history has the highest impact on your credit score. Late payments or defaults can significantly lower your score.
It is the percentage of credit you have used compared to the total available credit. High utilisation indicates that you are using too much credit, which can lower your score.
Length of credit history
The length of time you have had credit accounts also affects your credit score. A longer credit history indicates stability and can improve your score.
Types of credit
A mix of different types of credit, such as credit cards, loans, and mortgages, can positively impact your score.
Recent credit inquiries
Applying for credit too frequently can lower your score as it indicates that you may be in financial distress.
How to Calculate Personal Loans EMI?
Calculating your loan EMI is essential to understand the monthly outflow toward loan repayment. You can use a personal loan EMI calculator to estimate your EMI.
The EMI calculator requires entering your loan amount, interest rate, and tenure. Once you enter these details, the calculator will show you the EMI amount, total interest payable, and the total amount payable towards the loan.
For instance, if you take a personal loans of INR 5 lakh for a tenure of 3 years at an interest rate of 12%, your EMI will be INR 16,671 per month. The total interest payable will be INR 60,156, and the total amount payable towards the loan will be INR 5,60,156.
5 Quick Tips to Improve Credit Score
If you have a low credit score, you can take the following steps to improve it:
- Pay your bills on time
- Keep your credit utilization low
- Don’t close old credit accounts
- Maintain a healthy credit mix
- Check your credit report regularly
Obtaining a personal loan in India depends heavily on your credit score, which reflects your creditworthiness based on your credit history.
The CIBIL score for a personal loans is the most commonly used credit score for loan applications in India, ranging from 300 to 900. However, the average credit score required for a personal loans may vary depending on various factors, such as the lender’s criteria, loan amount, and the borrower’s credit history.
Knowing your credit score and following these best practices can significantly improve your chances of securing a personal loan in India.
Frequently Asked Questions
Q1: What is a personal loan and how does my credit score affect my eligibility?
A1: A personal loan is a type of loan that you can use for various purposes, such as debt consolidation, home improvement, or unexpected expenses. Lenders assess your credit score to determine your creditworthiness. A higher credit score often increases your chances of approval and may secure you a lower interest rate.
Q2: What is considered a good credit score for a personal loan?
A2: While specific requirements vary between lenders, generally, a credit score of 660 or higher is considered good for personal loans. However, some lenders might approve loans for individuals with slightly lower scores, albeit with higher interest rates.
Q3: Can I get a personal loan with a bad credit score?
A3: Yes, it’s possible to get a personal loans with a bad credit score, but it might be challenging. Some lenders specialize in bad credit loans, but these often come with higher interest rates. You might also consider applying for a secured personal loans, where you provide collateral to secure the loan.
Q4: How can I improve my credit score to qualify for a personal loan?
A4: To improve your credit score, start by making all your payments on time, including credit cards, loans, and bills. Reduce your credit card balances, avoid opening new accounts frequently, and check your credit report for errors. Over time, these efforts can boost your credit score and increase your chances of qualifying for a personal loan.
Q5: Are there lenders that consider factors other than credit score when approving personal loans?
A5: Yes, some lenders consider other factors, such as your income, employment history, and debt-to-income ratio, when evaluating personal loan applications. If your credit score is less than stellar, demonstrating a stable income and manageable debt can enhance your approval chances.