How CIBIL Score is Calculated for a Personal Loan?

You may need to apply for a personal loan online for several reasons. However, lenders may turn down your loan application due to a low CIBIL score. A good CIBIL score is paramount for obtaining a personal loan.

Although a good CIBIL score is essential for obtaining a personal loan, most people are unaware of how to calculate cibil score. If you want to get to the root of the credit score problem, read on. The blog will help you understand the basics of credit score calculation.

CIBIL Score Calculation for Personal Loan

Credit score calculation depends on many different parameters.

1. Repayment History

It is the most important variable for the calculation of CIBIL score for personal loan. About 35 per cent of your CIBIL Score is dependent on the repayment history. The repayment history provides the information of previous debts and payments for clearance of dues.

Additionally, it also represents the repayment with respect to time for a more accurate repayment score. Hence, it is necessary to pay the EMIs on time. It helps the lender to understand your commitment to a more debt-free lifestyle.

2. Credit Balance and Debt

Your lending company sanctions a credit limit for you. The unused portion of this credit limit is known as the credit balance. Your current debt and overuse of money in contrast to your income are negative factors that turn away lenders.

Lenders are wary of approving a personal loan if your credit balance utilization is high. The reason behind it is that chances of defaulting on the loan increase with higher utilization of credit balance.

The credit balance usage has a high impact on the credit score, second only to repayment history. It covers about 30 per cent of CIBIL score weightage for a personal loan.

3. Credit Mix

While applying for loans, you must diversify your loan types. If you are applying for only a specific kind of loan, it can hamper your credit score. On the other hand, not applying for credit will also do you no good.

You need to choose multiple varieties of loans, including both secured and unsecured. You also need to diversify the duration with both short term and long term loans. It helps to gain 10 per cent of CIBIL score for a personal loan.

4. Many Credit Lines

While having a healthy mix of credit is good, overuse of the credit mix strategy can be detrimental. If you are using too many new credit lines, it sends a wrong message to the lender.

The lender feels that you have a debt addiction, and it is your means of survival. Thus, the lender becomes unwilling to offer you a loan. It controls about 15 per cent of your CIBIL score for a personal loan.

5. Lender Inquiries

Before offering you a loan, lenders often check your credit score. Whenever a personal loan is rejected due to low CIBIL score, it hampers the credit score.

Hence, before submitting the personal loan application, you must always make sure that you have a good CIBIL score to avail the loan.

How the CIBIL Score Affects Personal Loan?

A good credit score acts as a certificate of trust. The CIBIL score gives the lender an idea of your commitment towards a debt-free lifestyle, along with your financial stability.

Most lenders will straight away reject you if your credit score is below 700.

Although some lenders may still approve your loan application, you will find that interest rates are highly challenging. Hence, you must always be aware of your CIBIL score before applying for a personal loan online.

Conclusion

To apply for a personal loan online, you must have a good credit score. The credit score depends on how committed you are at staying out of debt, and how carefully you manage debt promptly. Either way, you must check lenders’ interest rates and duration and plan your repayment accordingly.