Every loan comes with a set of eligibility criteria, even your Personal Loans. And if you don’t meet the criteria, a ‘Yes. Your loan is approved’ can easily turn into a ‘No. Your loan application has been rejected’.
Many factors affect your eligibility. One of the most important factors in your CIBIL score. Often, experts tell people to improve their CIBIL score before applying for a loan. This is to better their chances of getting a personal loan approval.
Let’s understand why:
Measuring the ability to repay
The CIBIL score is a way to measure your creditworthiness, that is, your ability to repay the loan. It takes into account your income and past debts. This includes the ones that you currently owe. Your other payment habits are important too. For example, one of the factors is consistent payment of your EMIs and credit card bills on or before time. This shows whether you have good debt repayment habits.
Based on these factors, you get a CIBIL score assigned to you. This credit score can be anything between 300 and 900.
Not a fixed score
The good thing about the CIBIL score is that it’s not set in stone. After all, your financial situation can and does change over time. Income levels increase; debt gets paid or piled on. Even habits change as a result of an improvement in financial health.
For example, you may not have received your salaries on time in the past. As a result, there may have been delays in your EMI and credit card payments. This pattern changed after you changed jobs and started receiving a steady income.
All such changes mean that the CIBIL score also varies over time.
Opportunity for all
Such a change means that everybody has the opportunity to better their score over time. Despite poor financial health and loan rejections, one can improve their credit score. There is a chance to get it in the range of 750 to 900. This way, any past ‘Nos’ because of poor credit score can easily turn into a ‘Yes’ tomorrow.
This can be applicable to those with average scores, too. For example, applicants with a credit score in the range of 600 to 700 may not face outright rejection. But they could face higher interest rates. This is because the bank or non-banking financial company (NBFC) tries to recover as much as possible in the initial years of the loan. This helps them lower their losses in the case of a default in future. Such applicants, too, can improve their CIBIL score over a period.
Improving CIBIL score
So, how do you improve your CIBIL score? You can do so with some very easy steps.
Broadly, it involves:
- Clearing your outstanding dues
- Setting a track record of on-time payments
- Improving your ability to withstand a debt burden.
This is just a summary of what needs to be done. It includes many big and small actions. You can find them here.
Better late than never
It’s better if you check your CIBIL score before you apply for your Personal Loan. Otherwise, you could face negative repercussions, like a higher interest rate or rejection.