Credit Score For Personal Loan
Personal Loans are unsecured loans. They are sanctioned based on your repaying capability. Unlike other loans where you keep things as collateral, personal loans do not ask for any of these collateral. A personal loan is sanctioned based on your credit score. The higher credit score you have, the better deals on personal loan would you receive.
Your credit score is calculated taking several factors into account,
Payment history
Payment history indicates whether you have paid all the dues on time. Even If you have skipped a payment or two, it would impact your credit score
Credit Utilization ratio
The amount of credit that you based on the approved credit limit also plays a vital role. If the total credit allotment is less than 30%, then your credit score would be healthy. The payment history and credit utilization ratio play a important role in determining your credit score
Old History
People with a long credit history generally have a higher chance for approval. Do not close your savings account even if you no longer user the account
Why credit score is important
The credit reports acts as a lifeline for various kinds of loans. All kinds of bank loans will be approved based on your credit score. It determines your creditworthiness and evaluates whether they can sanction loan to you or not. Your credit score largely determines the terms at which the lenders lend the amount to you at. For example, it includes interest rates for personal loan, tenure, fees, processing charges, and other charges.
What is a good credit score?
In order to sanction a personal loan, most banks and NBFCs expect a credit score of 750+ and helps you get best deals on interest rates. While scores in the range of 650-750 are good, you do not get offers for the same whereas scores below 650 would cause rejection of your application. In order to get the best personal loan deal, you need to shop around online market places a bit. In a site like Fincover.com, you can compare various loan quotes and select the one that suits your budget and needs
Impact of Credit Scores on Personal Loan Approval,
- Interest rates and APR
- Loan approval or rejection
- Loan terms and conditions
Can I get a personal loan with low credit score?
If you need a personal loan but have a low credit score, you can still get a personal loan. While banks do not risk such personal loans, NBFCs provide personal loan with lower credit score. However, you will not be in a position to negotiate for better deals.
Factors That Affect Your Credit Score
- Payment history: On-time payments, late payments, and defaults
- Credit utilization: Balances compared to credit limits
- Length of credit history: Age of your credit accounts
- Types of credit: Mix of credit cards, loans, and mortgages
- New credit: Recent credit inquiries and opened accounts
Strategies to improve your credit scores
- Reviewing your credit report for errors: Regularly review your credit report for any fraudulent activity that may reduce your credit score
- Timely bill payments and debt management – Consistently paying your bills by their due dates is one of the most impactful ways to improve your credit score
- Managing credit utilization effectively: Use the amount below their limits to demonstrate responsible credit usage
Alternative Credit Options
If your credit score is low, you might still have options for obtaining a personal loan. Some lenders offer loans specifically designed for individuals with less-than-perfect credit. However, these loans might come with higher interest rates and less favourable terms.
Conclusion
Your credit score is a powerful financial tool that can greatly influence your ability to secure a personal loan on favourable terms. By understanding the factors that impact your credit score and taking steps to improve it, you can position yourself to achieve your financial goals with confidence. Remember that responsible financial behaviour over time is the key to maintaining a healthy credit score.