Why is the CIBIL score different for personal loans?

A personal loan is a quick and relatively hassle-free way to secure funds for an unforeseen emergency that requires funds urgently. The best part about personal loans is that the end use is not defined, and you can use the funds to fulfil (almost) anything you had in mind, from a vacation to home renovation to purchasing a new electronic appliance or jewellery. Of course, the usage cannot be such that it violates any laws, for example using the disbursed loan amount for trading on the stock exchange, or gambling or laying bets.

Once you have identified the need for a personal loan, start shopping – look around for the best deals in the market, primarily in terms of interest rates. While the eligibility criteria for a personal loan may differ from lender to lender, one thing that they all have in common is the requirement of a ‘good’ CIBIL score.

What is a CIBIL score?

A three-digit score that indicates an individual’s creditworthiness, the CIBIL score is crucial when it comes to applying for a loan or credit card. When a lender evaluates your loan application, the first piece of information they look at is this score.

Why is a CIBIL score required?

Typically, a score is between 300 and 900, and higher the score, better are your chances of the application being approved. A lower score may indicate that a person relies heavily on credit to make ends meet, and hence a lender may be reluctant to extend fresh credit, as chances of the loan going ‘bad’ or delinquent are higher.

Factors affecting the CIBIL score

Now that we know what a CIBIL score is, let us look at the factors that affect the score:

  • Timely payments on outstanding dues, be it towards an existing loan EMI or credit card

  • Making complete payments on outstanding bills

  • Non-payment or late payment of bills and EMIs

  • Consistently utilising a high credit limit, i.e. either maxing out on the assigned limit or close to it

  • Regularly paying only the minimum due on credit cards

  • Having multiple lines of credit at the same time, especially if unsecured loans or credit cards

While some of these factors affect the score negatively, others can have a positive impact on your score.

CIBIL score and loans

While CIBIL scores are important for any loan application, they assume special significance in the case of personal loans. This is owing to the fact that personal loans are unsecured products, and is therefore more of a credit risk for the lender.

A lender is more likely to approve a loan application for someone with a higher score, which with CIBIL is normally considered to be 700 and above. A ‘good’ score indicates an individual’s responsible behaviour towards credit, and hence it may be worth lending to such a consumer.

CIBIL TransUnion Personal Loan Score

In addition to the CIBIL TransUnion score that is used by banks and other financial institutions when determining whether to approve a loan application (for example, a home or auto loan), there is also the CIBIL TransUnion Personal Loan score that lays special emphasis on any unsecured loans or credit cards that an individual may have in their credit report.

The repayment behaviour on these loans is carefully studied, and a score is arrived based on the same. The score will provide information on the likelihood of the customers becoming 91 days delinquent on a personal loan. This helps a lender make an informed decision, whether to approve the loan application or not.

How to better your CIBIL score

In addition to using credit wisely and making timely payments, check your credit score regularly. This will help you identify any irregularities in your credit report, and these can be rectified once brought to the attention of the credit bureau.

If you still need assistance to improve your score, consider availing of the services of a credit health management company, who will work closely with you to not only improve your score but enhance it over time.

Do keep in mind that for your loan application to go through, being credit healthy is non-negotiable, and the best time to start is now.


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