Understanding the Importance of Credit Score for Personal Loans

Are you eyeing a personal loan? Make sure your credit score doesn’t become a roadblock in your path. Experts suggest that a credit score above 750 can enhance your chances of loan approval and secure favourable interest rates.

“A strong credit score is essential for securing personal loans. Whether it’s covering medical expenses or embarking on a dream vacation, prioritising credit score improvement can enhance your eligibility and potentially lead to better loan terms,” said Arpit Suri, a personal finance expert.

But what exactly is a credit score? It is a numeric representation of your credit history, serving as a gauge of your creditworthiness. Issued by credit bureaus like CIBIL, CRIF High Mark, Equifax, and Experian and TransUnion, this score typically ranges from 300 to 900.

Unlike secured loans backed by collateral, personal loans depend largely on your creditworthiness and repayment capability. Financial institutions scrutinise your credit score to assess the risk associated with lending you money.

So how do credit scores affect your finances? Many lenders set a minimum credit score requirement, often around 750, for personal loan approval. Falling below this mark might lead to rejection, although other factors like income and debt-to-income ratio may also be considered.

A higher credit score, usually above 800, can lead to lower interest rates on personal loans, potentially saving you money over the loan term.

If you’re looking to boost your credit score, consider making timely repayments, keeping your credit utilisation ratio below 30%, avoiding frequent loan applications, maintaining a diverse credit mix, and retaining old credit accounts. These strategies can help improve your creditworthiness over time and increase your chances of securing a personal loan with favourable terms.