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Why is it necessary to check the CIBIL™ score before applying for a loan?

CIBIL™ score is the barometer for loan applications as per many lenders. When the applicant applies for a loan or credit card, the lenders will ask for the credit score of the applicant through CIBIL™.

If the credit score as per CIBIL™ is favourable, i.e., 750 or above, it is considered to be good. This clears the first hurdle for loan sanction for the applicant. The lender will then check other points of eligibility like the income of the applicant, other external liabilities, age of the applicant, EMI to income ratio, relationship with the lender, etc.

If the eligibility of the applicant is proved on all such points of considerations, the loan is sanctioned easily. The applicant can also get the loan at a competitive rate of interest and can also have the benefit of waiver of processing fees.

When the applicant does not check the credit score before applying for the loan and if it is rejected it will further impact negatively on the credit profile of the applicant. It is therefore better to check the credit score before applying for a loan. If the applicant realises that his/her credit score is lower and may result in rejection of loan, he/she can take corrective measures to improve such credit score.

Additional Reading: Good CIBIL™ Score for Loans

Some of the remedial measures to improve the credit score of a person are,

  • Payment of all pending dues on credit cards or loan EMIs.
  • Maintaining a timely payment of all future dues like EMIs or credit card charges.
  • Maintaining the credit utilization ratio within the ideal range of 30% to 50% of the credit limit.
  • Avoiding multiple applications for loan or credit cards in a short time.
  • Maintaining older credit accounts and avoiding closure of the same.

Loans are the easy source of finance that can be availed by a person to meet their financial needs. Today a person has numerous options to get loans from many sources like banks, Non-Banking Financial Companies, Micro Financial Institutions, etc. All such entities provide various types of loans like home loans, personal loans, vehicle loans, education loans, etc. these loans are provided to the person subject to their eligibility.

Each lender has its own set of specific eligibility criteria that the applicants have to meet to be able to get the sanction of loan. One of the main points of eligibility across all such lenders is the credit score of a person.

Additional Reading: What is a good CIBIL™ Score for Home Loan ?

What is a credit score?

A credit score is a three-digit number that is issued by competent credit rating agencies across the country. This number is the measure of the creditworthiness of a person. This is usually one of the first points of reference for the lenders to check while issuing a line of credit. The credit score is based on the credit history of the person. Any delay or default in payment of liabilities negatively affects the credit score.

What is a CIBIL™ score?

There are four primary credit rating agencies in India that issue credit score for any person. These agencies are,

  • CIBIL™
  • Equifax
  • Experian
  • CRIF Highmark

CIBIL™ is one of the most favoured credit rating agencies among the above-mentioned list. CIBIL™ score is issued ranging from 300 to 900. A score of 750 and above is usually considered to be a good credit score and can get the applicant better deals when they apply for loans or credit cards.

check my CIBIL™ score before applying for a loan FAQs

1. Can I get loans or credit cards with a low CIBIL™ score?

A. Yes. A person can get loans or credit cards even when their CIBIL™ score is low. The options available for the applicants in such cases are,

  • Applying for a secured loan
  • Applying for loans through employer’s help, i.e. through partner lenders of the organization
  • Applying for a loan through NBFC or Micro Financial Institutions
  • Applying for a loan with a co-applicant
  • Waiting for a few months before applying for a loan or a credit card

2. What is considered to be a good CIBIL™ score according to lenders?

A. A CIBIL™ score ranging from 750 or above is considered to be good by lenders.

3. What are the benefits of checking my CIBIL™ score before applying for a loan?

A. There are many benefits of checking the CIBIL™ score before applying for a loan. Some of such benefits are mentioned below.

  • Avoiding rejection of loan or line of credit which further damages the credit score of a person (especially if the applicant has faced rejection in past)
  • Ease of loan approval through any lender of the credit score of the person is good as considered by majority lenders.
  • Availability of loans at better or lower rates of interest
  • Availability of higher amount of loan
  • Availability of loans with no collateral or security as per the guidelines of the lender.
  • Better negotiation capacity for lower or waiver of processing fees for the loan

4. What are the factors contributing to or influencing the credit score of a person?

A. Some of the factors contributing to or influencing the credit score of a person are,

  • Age of the applicant
  • Payment history of the person with respect to EMIs or credit card dues.
  • Frequent hard enquiries of the credit score of the person
  • The credit utilization ratio of the person
  • Income or repayment capacity of the person

5. 5. What is a soft enquiry for the CIBIL™ score of the person?

A. When a person checks or makes inquiries for their own CIBIL™ score, it is known as soft enquires for credit score. Checking own credit score is considered a healthy financial habit and it does not hamper the credit score of the person.

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