Having easy access to finance via various loans helps you meet urgent needs and fulfil your goals. All loans come with their eligibility criteria, a personal loan to pay for healthcare or a wedding, a home loan to become a homeowner or a business loan to boost your firm’s growth.
To both qualify for a loan and get it on competitive terms, your credit score is a number you can’t ignore. A credit score above 750 reflects good financial health and increases your chances of getting an affordable sanction on flexible terms.
Why does your credit score matter when you’re looking to take a loan
Your credit score showcases your creditworthiness and allows your lender to judge your application as a potential borrower. It is a summation of your credit history and how responsibly you have dealt with credit in the past. Your credit score reflects your credibility since it considers things like timely repayment of EMIs, your credit utilisation, your credit inquiries, and your existing debt. A good credit score shows your lender that you are financially stable and responsible with credit.
However, do keep in mind that your credit score is not the only criteria in the process of qualifying for a loan and getting approval on your application. Other factors such as your salary, city of residence, existing debt, employer, etc., also play a part.
While a good credit score is essential irrespective of the kind of financing you are looking to avail, here are the ideal scores that can help you get a better deal on your loan.
Ideal credit score to avail a personal loan
Your credit score is a significant factor determining your eligibility for a personal loan since it is a collateral-free loan. The minimum CIBIL score for a personal loan is between 720 and 750. Having this score means you are creditworthy, and lenders will approve your personal loan application quickly. They may also offer you your chosen loan amount at a nominal interest.
While you may still be able to get a personal loan with a credit score between 600 and 700, the lower your score, the lower your approved loan amount will be. A credit score below 600 is considered inadequate for personal loans in most cases.
Ideal credit score to avail a business loan
If you are applying for a collateral-free business loan, having a credit score of 700 or more is ideal. If you are applying for a secured business loan, your loan application may be approved with a lower credit score, say between 600 and 700 too. Both these scenarios are true when you are applying for a business loan as an individual, be it a self-employed professional such as a CA or engineer or doctor or self-employed non-professional such as a trader or manufacturer.
Additional Read: How to ensure your Business CIBIL score stays above 700
However, if you are applying for a business loan as an entity, be it a Partnership, Limited Liability Partnership, Private Limited, or a closely held limited company, your business credit score matters apart from your personal credit score. In such cases your CIBIL rank or Equifax business credit score is checked by the lender.
Ideal credit score for home loans
A home loan is a secured loan as the home you are purchasing acts as the collateral. Hence, it is possible to get a home loan even if your credit score is lower than 750. Some lenders sanction home loans if your credit score is around 550 or more.
It is important to remember that the lower your credit score is, lower the loan amount might be sanctioned on approval. That is why applying for a big loan amount when your credit score is low is not advisable. In some cases, lenders provide only 65% or less of the required loan amount if your credit score is low. It would be better to improve your credit score before applying for a home loan.
Additional Read: Where to check credit score
Even though you may get a loan even if your credit score is low, it is important to realise your credit score will always be considered for loan approval. This is why it is better to have a good credit score instead of risking rejection from a potential lender, which may lower your credit score further.
Bajaj Finserv offers pre-approved offers on a variety of loans. Just share your details and check out your pre-approved offer to avail the financing you need.
While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent inaccuracies or typographical errors or delays in updating the information. The material contained in this site, and on associated web pages, is for reference and general information purpose and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Subscribers and users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. In case any inconsistencies observed, please click on reach us.
*Terms and conditions apply