Credit Information Bureau India Limited (CIBIL) calculates your CIBIL Score, something that is based on current financial analysis and other monetary references (CIBIL). This is a three-digit number ranging from 300 to 900. The stronger the credit (CIBIL) number, the more financially healthy you are, and the more certain you may be to become authorized for a loan, along with a personal loan at a reduced interest income.
Credit score or CIBIL Score plays a critical role in getting approval for bank loans especially for personal loans. Your CIBIL Score acts as a first impression while applying for a loan. Banks consider this score for assessing creditworthiness of the prospective borrowers. If you have a bad credit score below then it may be difficult for you to get a personal loan approval. Even if you are able to secure a loan then you might also have to pay a higher interest rate.
Why Do Credit Scores Go bad?
Poor CIBIL Score Causes: A weak CIBIL result can be caused by a variety of factors. A borrower’s credit score might be lowered as a result of their own mistakes as well as bank oversights. In particular, bank errors involve sending incorrect details about a loan to CIBIL and failing to maintain documentation, among several other things.
Customers’ credit scores might be boosted or lowered depending on how they manage their money.
Credit ratings are influenced by a number of criteria, the relevance of which fluctuates. The following are some of the most common blunders made by borrowers:
- Inappropriate credit usage: Credit utilisation is the relation between how much loan you’ve been granted and how much of it you’ve really used. This refers to the total amount you can spend on all of your credit cards, as well as where you are in respect of its application. Your credit score may suffer if you use a large fraction of your available credit.
- Poor record of debt repayment: A bank’s most basic and crucial concern when it comes is your debt payback record. Your credit score is great if you have settled all of your outstanding debt in complete and on schedule. However, if you have failed to repay on a loan or make inconsistent repayments, your credit report will suffer.
- Duration of borrowing:Your credit history is influenced by how long you’ve had funding and how well you’ve managed it. New credit borrowers typically have a lower credit score than those who have been using credit for some time.
- Additional credit applications:Your credit score is affected by the regularity with which you apply for additional credit. Banks may see how often you’ve registered and also how many times you’ve gotten authorized or denied, thus applying too frequently can backfire.
What Methods Does CIBIL Use to Monitor Your Credit Score?
Your bank maintains a record of how much you invest on your credit card or how much you return the money on a loan. Such statistics are shared with CIBIL on a monthly basis by the bank or other financial institution. This data is used to create your Credit Information Report (CIR) or score, which is used by other creditors to assess your credit scores. As a result, CIBIL is the go-to source for determining a debtor’s financial performance. In its loan procedures, it provides a level of security to banks and the financial organisations.
Credit Scores: How Do Banks Use Them?
The TransUnion Score and the Credit Information Report (CIR), both provided by CIBIL, are critical in the credit authorization. This data is readily accessible on the internet, and banks can use it to determine if a loan eligibility qualifies. The score is largely a snapshot of a person’s credit record, existing debt obligations, and debt payment capabilities. Following these inspections, creditors may require customers for documentation such as valid identification, address proof, and evidence of income before approving the loan.
How do Get a loan with a bad credit score?
However there are other ways to get a loan approval if you have a bad credit score
- Assure for Repayment with Proof: If you’ve got a salary hike or have an additional source of income then you can convince your lender that you will repay the loan amount within the specified timeframe. A lender may approve your loan application despite a low CIBIL Score however most probably charge you a higher rate of interest.
- Apply for a lower Amount: A lender may not be willing to allow a higher loan amount to you. From a lender’s perspective it would be risky to allow a higher loan amount to you. In such a case you can ask for a personal loan of a lower amount which would be less risky from the lender’s point of view. By doing this, there will be higher chances of getting approval of your loan application.
- Apply with a Co- applicant:If you have a lower credit/ CIBIL score, you can apply for a personal loan with a co-applicant or you can also secure your loan by appointing a guarantor who will take the responsibility of paying off the debt in case you are not able to repay the loan. This will reduce the risk of repayment and the lender may grant you a personal loan.
- Improve/ correct your CIBIL Score: There are chances that your credit report may not be updated against your record. Check your credit report again and try to correct it if needed. This will improve your credit score and also makes you a less risky applicant.
- Know if your Employer has a tie up with the Lender: If the company or firm you are working with is a reputed business organisation then there might be chances that your employer has a tie up with the lender. In such a case the lender may approve your loan even if you have a lower credit score.
- Go for a Secured Loan: Instead of applying for a personal loan you can apply for a secured loan if your need is urgent and have anything to give something as collateral for security. The lender will consider your loan if your collateral is worth sufficient as per the lender’s terms.
Apart from the above options you can also try to improve your credit score by taking various corrective measures such as timely payment of your credit card bills, paying existing loan EMIs on or before time, choosing another category of loans if you have not paid off the old loan etc.