When you apply for a personal loan, the lending institute will need to first consider whether you are worthy of receiving that loan. In other word, the bank would need to know and understand whether you are good with your finances. It will also consider whether you can repay the loan within the given time or whether you are prone to missing your payments.
Most lenders and banks will review your credit worthiness through your CIBIL score. This value is associated with you and your financial profile. It also indicated how responsible you are with your previous loans and credit cards. In fact, the CIBIL score is one of the primary parameters that is used to determine the approval of any loan.
Calculation of the credit score:
Your credit score is calculated on a specific set of parameters. In most cases, they include:
35% – The repayment history
30% – Amount currently owed to lenders
15% – Number of years of service debt
10% – Number and amount of recent loans taken or applied for
10% – Credit mix
Based on this, the score will be calculated within a range of 300 to 900.
How do you get a bad score based on these parameters?
There are various reasons as to why a potential borrower’s credit score can be affected. It includes the following:
• Defaulting in making on any of the repayments
• Extensively shopping for a loan but getting rejected repeatedly.
• No previous loan application
• No previous credit history for validation
When you need to avail a loan, a lender or bank will conduct a background check on the borrower. Through this check, they will ascertain if the applicant is capable of making payments and repaying their loan. Higher the credit score, higher will be your chance of availing a loan. Furthermore, you will get better loan rates in terms of a flexible tenure and better interest rates.
When it the right time to opt for a personal loan?
If you are planning to apply for a personal loan online or at your bank, you can consider these factors to increase your chances of getting the loan:
Sufficient time to improve the score: If you have sufficient time to improve your credit score, you can take the efforts and means to do so. A small loan or credit card repayment will help improve your score to the required acceptable one.
Good salary: If you earnings is good enough now, you can apply for this loan. At the same time, you will need to have enough capacity to repay your loans it will work in your favour no matter how low the CIBIL score is.
Consider your spouse’s CIBIL score: If your own score is low, you need not worry. Your spouse may have a better score than you. In this case, you can always apply for a joint personal loan online or at the bank. Banks will consider the combined credit score, thus increasing your chances of approving the loan.