The most vital criteria that decide if your loan application is approved by a bank or not is the CIBIL score. It does not matter how great the amount of your earnings may be if your CIBIL score is poor or nonexistent; it could lead to the rejection of your loan application. Let us now take a closer look into the rules that surround the CIBIL score, its importance, and the ways to improve it such that a loan can be applied for easy approval and favorable terms.
Why CIBIL Score Matters for Loan Approval
A CIBIL score is a three-digit digit, indicating how good a borrower is in repaying his or her loans. Financial institutions and banks will prefer such scores when it comes to judging an individual’s ability to repay a loan. A good score guarantees speedy loan approvals at lower rates of interest, while poor scores assure rejection, even when your income is in lakhs.
The new norms related to CIBIL score evaluation have become stricter; if your score does not match the bank criteria, your loan application will be rejected even if your income is well above average. This condition is hard on first-time loan applicants without a credit history.
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Difficulties Between First-Time Applicants for Loans
If you have not hitherto availed of a loan, nor enabled yourself to be in debt for credit card spending, a zero CIBIL score is recorded in the books. Banks see this from a perspective of lack of credit history such that they cannot judge and assess your repayment behavior. Result in this regard:
- You are likely to be given loans at a high interest rate.
- The loan amount approved could be much less than you anticipated.
- Some banks may even outrightly reject your application.
- This depicts how important it is to build up a credit history before applying for a loan.
What Should Your CIBIL Score Be According to Loan Eligibility?
Typically, banks check your CIBIL score while processing a loan. This is all you need to know:
- A score above 750 is a good score and increases your chance of getting a loan at better terms.
- If you have taken loans in the past, then your repayment history will affect your score. The timely repayment will boost your score while defaulting will degrade it.
- For first-time applicants where there is no credit history, the score may show zero making the applicant hard-pressed to avail affordable loans.
Why Personal Loans Are Tougher to Secure
A low or zero CIBIL score makes a personal loan all the more difficult to obtain. Unlike secured loans, such as home or auto loans, personal loans heavily depend on credit score and income because the banks consider personal loans riskier. Hence, these give rise to:
- Higher interest rates.
- Stricter eligibility criterion.
- Rejection if the score is not up to the mark.
How to Improve CIBIL Score
For example, one may be struggling to upgrade his or her CIBIL score from low to zero. Here are some simple practical ways to build it:
- Open a Fixed Deposit (FD): You may not have taken a loan or a credit card, but you can consider opening a small FD with any bank. Most banks even allow you to get it opened online for quick processing. Doing all this enhances trust in lenders.
- Apply for Small Loans or Credit Cards: Start with a small loan or credit card and ensure to pay all EMIs or bills on time. Gradually, a consistent payment routine will enable the CIBIL score to improve.
- Credit Report Monitoring: Keep on checking your CIBIL report for corrections or discrepancies regularly. If you find any, suggest them to the credit bureau as soon as possible.
- Minimize Multiple Loan Applications: Applying for several loans or credit cards within a time frame can damage your score. Thus, be highly selective in your applications.
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