Ideal Credit Score in India to Apply for a Loan

Help from financial institutions in the form of loans aids in fulfilling goals, meeting urgent monetary requirements, and living a comfortable life. But there are certain eligibility criteria and requirements that you need to meet to get a loan, having an ideal credit score being one of them. 

If you are looking forward to applying for a loan and want to know the various credit score requirements, we have got you covered. This blog describes the ideal credit score requirement in India that is needed for applying for different types of loans, which will take you one step further in the process.

Relevance of a Good Credit Score for Applying for Loans

Before we dive into the world of ideal credit scores, it is vital to understand the significance of having a good credit score. To put it simply, your credit score defines your creditworthiness. It is an important parameter that helps the lender to consider your application. You can become a potential borrower only if your credit score is up to the mark. It is also representative of your credit history. It describes the way you have handled your credit in the past and whether you were consistent about it or not. Your credit score is a mirror to the timely or regular repayment of EMIs, credit inquiries, credit utilization, and the existing debt. So, having an ideal credit score will ensure your lender that you are financially responsible. 

Please keep in mind that the credit score is not the only criterion for the approval of your loan application. Factors like salary, existing debt, city of residence, employer, etc., are also kept in consideration.

What is the Ideal Credit Score Required in India for Availing Various Loans?

An ideal credit score (CIBIL score) remains the same for other purposes as that for applying for loans. The higher the score, the higher would be the chances for the loan to get approved. Even though a CIBIL score of 700 to 900 is considered the most favorable, different rates are considered ideal for different products. For instance, a higher credit score would be required for an unsecured loan and a lower credit score for a secured loan. Let us now have a look at the ideal credit score requirements for different loan products.

What is the Ideal Credit Score Required for a Personal Loan?

Since a personal loan is a collateral-free loan (which means that you cannot pledge your collateral to secure a loan), your eligibility for getting the same highly depends on your credit score. The financial institutions use this score as a yardstick to sanction personal loans. 

Having a score of up to 750 is considered the ideal credit score for acquiring personal loans. The minimum credit score for sanctioning a personal loan is expected to range between 720 and 750. Having this credit score means that you have high creditworthiness, and the lender will approve your loan application swiftly. The lenders might also offer you the required loan amount at a very nominal rate of interest. 

You might also get a loan with a score ranging from 600 to 700, but the amount of loan sanctioned could be lower than what was requested. Also, the lender might charge a higher rate of interest if the score is below 700.

What is the Ideal Credit Score Required for a Business Loan?

If you are applying for a collateral-free business loan, you must have a score of 700 or more. However, if you are seeking a secured business loan, your application can be approved even with a low score like 600-700. The rate of interest, in this case, might be higher. These situations are true if you are applying for a business loan as an individual.

If you are applying for a business loan on behalf of an entity (Partnership, Private Limited, Limited Liability Partnership, etc.), then the lenders will also consider your business credit score apart from your personal credit score. In these cases, your Equifax business credit score or CIBIL rank will be evaluated by the lender. Hence, it is a pressing priority to maintain an ideal personal and business credit score to process a business loan.

What is the Ideal Credit Score for Attaining a Home Loan?

A home loan can be sanctioned easily because it is a secured loan since the house that you are buying can be used as collateral. You can bag a home loan even if your credit score is less than 750. A few lenders also provide home loans if your credit score is 550 or more. 

An ideal credit score in India is 750 or above if you are applying for a home loan. The reason being, lower the credit score, the lower will be the amount sanctioned for the loan. For instance, some lenders only approve 60-65% of the loan amount for a low credit score. Hence, it is advised that a loan with a huge amount should not be applied for when your credit score is low.

What is the Ideal Credit Score for Acquiring an Auto Loan?

An auto loan can be sanctioned smoothly with a lower credit score as well. However, it is always recommended to maintain a high credit score so that the lender can acquire a higher amount of loan. Keep your credit score between 600 to 750 for an auto loan to receive affordable interest rates.

On a Final Note

Since each bank has its own criteria for establishing an ideal credit score, it is important that you go through and compare different loans before you apply for one. Only apply for a loan when you are sure that you meet the eligibility parameters of that bank. If you are not meeting the ideal score, then you can make up for it by not applying for multiple loans at the same time and by paying the bills recurrently.

Frequently Asked Questions (FAQs)