How does your credit score impact your ability to take a Personal Loan

Borrowers who are keen on availing of small Personal Loans and fast loans will generally be appraised to see how credit-worthy they are. Here’s where a credit score can help financial institutions assess the ability of a borrower to repay a loan. If you’re interested in availing of small Personal Loans or fast loans, you will need to know how your credit score impacts your ability to borrow. Here are the details.

What is a credit score?

A credit score is a numerical representation of a person’s credit worthiness. It’s a number that reflects your ability to repay a loan. The credit score also helps banks and lenders understand the potential risk of a borrower defaulting on a loan.

In India, your credit score is determined by CIBIL, which is a company that has access to your credit history and your credit information. Based on this data, CIBIL calculates your credit score, which is a three-digit number that typically ranges between 300 and 900. Just like individuals, businesses are also evaluated by CIBIL to determine their business credit score.

How is your credit score determined?

Your credit score is calculated based on a number of factors. Some of the most important influencers are explained here.

Your repayment history: Your repayment history essentially refers to how regularly you have repaid all your earlier debts. This factor contributes to around 35% of your overall credit score.
Your credit balance: This term points to the portion of the credit sanctioned to you that remains unutilised. The higher your credit utilisation, the greater your risk of defaulting. Your credit utilisation pattern contributes to around 30% of your credit score.
The duration you have availed credit for: The duration for which you have availed credit and the punctuality of repayment during this duration contribute to around 15% of your overall credit score.
New credits: Too many enquiries about new loans or Credit Cards may catch up to you. When it reflects on your credit score, it may give the impression that you are too keen on obtaining huge credits. This factor influences the credit score by a maximum of 15%.
Your credit mix: The mix of secured and unsecured loans and short-term and long-term credit also plays a role in determining your credit score by up to 10%.

What is an ideal credit score?

While your CIBIL score can range from 300 to 900, you will find that any score over 750 makes it easier for you to avail of unsecured credit like small Personal Loans and fast loans. If your credit score is below 750, it might be harder for you to borrow money from banks and other financial institutions.

How does it impact your eligibility for small Personal Loans?

Your credit score impacts your ability to take a Personal Loan in two ways.

Your overall eligibility: Your credit profile plays a primary role in determining whether or not you are eligible for a loan in the first place. First-time borrowers and borrowers with a higher credit score will almost always be eligible for large unsecured loans from leading financial institutions and banks. On the other hand, borrowers with a lower credit score may find it difficult to meet the eligibility criteria set by these lenders. A moderate credit score may qualify you for small Personal Loans, but might leave you ineligible for larger loans.
With an ideal credit score, there are different kinds of small Personal Loans that you can avail from ICICI Bank. Whether you require funds for renovating your home or for taking the vacation of your dreams, a good credit profile makes borrowing extremely easy.
The rate of interest: Your credit score also determines the rate of interest you are charged. Lenders generally tend to offer loans at lower interest rates to borrowers with a clean credit history. A poor credit score, even if it makes you eligible for fast loans, will increase the rate of interest charged. This is because lenders will want to ensure that a significant sum of the loan is repaid early on, considering that a poor credit score points to a great possibility of default.

How can you improve your credit score?

Now that you know how your credit profile can affect your ability to borrow, here are some tips to help you improve your credit score.

Pay your EMIs on time
Cancel dormant Credit Cards
Don’t apply for too many loans within a short span of time
Make part pre-payments whenever possible
Choose shorter loan tenures as much as your finances permit

Before you apply for a loan, you can check your loan eligibility and get to know more about your approximate EMI schedule with ICICI Bank Personal Loan EMI Calculator. If your credit score is in the right bracket, you can avail of small Personal Loans from ICICI Bank easily. Depending on your eligibility, income and repayment capacity, you can borrow any amount from Rs 50,000 to Rs 20,00,000. With attractive interest rates and easy repayment schedules, ICICI Bank’s small Personal Loans and fast loans may just be the financial solution you have been looking for.

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