Personal loan approvals are related to credit score. When you make on-time payments, it shows lenders that you are a responsible borrower; this leads to lower interest for personal loans. Even if you have a bad credit score, there are lenders who offer personal loans to people with fair or low credit scores. But be sure to compare interest rates and fees before you choose a lender. If you’re considering a Rs 1 Lakh personal loan EMI, be sure to use it wisely. Only borrow what you need and make sure you can afford the monthly payments. Because if you default, your score will go down further. In this article we’ll help you understand the relation between a credit score and a Personal Loan, so let’s begin.
What is a credit score?
A credit score is a number that lenders use to assess your creditworthiness. It is calculated based on your credit history. And the credit score number ranges from 300 to 900, with a higher score indicating a better credit history.
What does a credit score mean to the lender?
A credit score is a number that lenders use to assess your creditworthiness. A higher score indicates a better credit history, and a lower score indicates a worse credit history. And based on that they’ll determine whether to approve you for a loan, and how to set the interest for personal loan, if approved.
How does credit score impact personal loan interest rates?
Lenders use credit scores to assess the risk of lending money to you. Borrowers with higher credit scores are seen as lower risk, and therefore typically get lower interest rates. Borrowers with lower credit scores are seen as higher risk, and therefore typically get higher interest for personal loan.
For example, let’s say you apply for a personal loan with a credit score of 700. You may be approved for a loan with an interest rate of 9%. However, if you had a credit score of 600, you may only be approved for a loan with an interest rate of 16/17%.
How to improve your credit score?
There are a few things you can do to improve your credit score:
- Pay your bills on time. This is the most important factor in determining your credit score. Make sure to pay all of your bills on time, including your credit card bills, car loan payments, and mortgage payments.
- Keep your credit utilisation low. Your credit utilization is the amount of debt you have compared to your total credit limit. A high credit utilization can indicate that you are carrying too much debt. Try to keep your credit utilization below 30%.
- Dispute any errors on your credit report. If you find any errors on your credit report, dispute them immediately. Errors on your credit report can lower your credit score.
Conclusion
Your credit score is an important factor in determining your eligibility for a personal loan, and the interest rate you will pay on the 1 lakh personal loan EMI. By following the tips above, you can improve your credit score and get a better deal on your next personal loan.
