What Credit Score Do You Need for a Personal Loan?

What is the Minimum Credit Score for a Personal Loan?

A credit score is numeric representation of credit worthiness. The credit score ranges from 300 to 900. A credit score between 750 to 900 is considered to be an ideal score for availing personal loans. A score in this range, shows you have an excellent repayment history and can manage your debts responsibly. A good credit score helps sanction personal loans and you can also negotiate on the interest rate and terms and conditions of the loan.

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What Credit Score Do You Need for a Personal Loan?

How to Check Your Credit Score?

There are several websites that allow you to check credit score for free. A credit score is a number based on various factors like repayment history, loans and credit cards availed, loan defaults and so on. You can check credit report and credit score free on IndianMoney.com. You can check credit score any number of times as these are soft enquiries which don’t affect credit score.

Improving your Credit Score Before Applying for a Loan:

A good credit score can help get loans sanctioned easily, with better terms and conditions. A good credit score is around 700 to 850 points. To improve credit score, follow the tips below:

Check For Errors on Your Credit Report: It is important to keep a track of your credit report. A credit report check helps you stay informed and make wise financial decisions. You can check your credit score as often as you wish. Sometimes, incorrect information may result in credit score going down. If you spot any incorrect information in the credit report, get it rectified for a good credit score.

See Also: Personal loan in India

Make Payments On-Time: A credit score is the numeric summary of credit worthiness. It is a track record of repayments. To maintain a good credit score, make sure to pay all your bills and debts on time. You must pay all your EMIs and credit card dues on or before the due date. Any delay in payment can negatively impact your credit score.

Maintain a Good Credit Utilization Ratio: To maintain good credit score, try to keep your credit utilization ratio below 30%. To get a good credit score, make sure monthly credit card bills do not exceed 50-60% of your credit limit. Overspending with credit card negatively impacts your credit score.

Avoid Applying for Credit: Don’t pile on the debt, if you don’t have a good credit score. Multiple loan applications lead to hard enquiries. The enquiries made by the banks are hard enquiries and each hard enquiry lowers your credit score by 5 to 10 points. Try to avoid hard enquiries by banks to improve your credit score. Rejected loan applications reduce your chances of getting the personal loan sanctioned.

See Also: Get Personal Loans in Emergency Situations

What Other Criteria Do Personal Loan Lenders Consider?

Apart from credit score check, the lenders also take into consideration other important eligibility criteria like income, age, number of loans currently being repaid and so on. When you apply for a personal loan, the banks evaluate and verify the following parameters before sanctioning the loan:

• Income: Income is an important criterion while availing a loan. The amount of loan sanctioned depends on your income. A personal loan applicant must have stable income like a job or a business, in which he is engaged for at least 2 years or more. A steady income helps the borrower repay the loan easily.
• Current debt: The monthly EMIs must not exceed 50% of take home pay. Based on the EMI to income ratio, the bank will either approve or reject the loan application of the borrower.
• Repayment history: Bank loans are based on various parameters that determine the eligibility of the borrower. Before approving the loan, the lenders go through the repayment history of the borrower, to check if the applicant has any loan defaults or doesn’t make repayments in time.

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