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A credit score is simply one of the most crucial criteria financial institutions check while approving personal loans. This three digit number ranges from 300 to 900 primarily. It is a clear reflection of the borrowers creditworthiness, repayment ability, credit usage and the overall integrity of one’s credit profile.
In our nation where personal loans are unsecured in nature, banks and lending institutions heavily depend on credit scores to analyse and assess lending risk. In this regard a credit score of 750 or more is considered reputable. Still, it is important to keep in mind that apart from just these scores there are a host of other factors that are taken into account by lending institutions before permitting loan approvals.
Adding to the same, Himanshu Panchmatiya, Co-founder, Switch My Loan, said “A credit score of 750 and above is generally considered optimum for availing a personal loan, especially when it comes to quicker approvals and better interest rates. However, with the growth of digital lending and evolving risk assessment frameworks, lenders are increasingly open to evaluating applicants in the 650–750 range—especially if supported by stable income, low debt-to-income ratio, or strong repayment history. The industry is moving towards a more holistic view of creditworthiness rather than relying solely on scores.”
Minimum and ideal credit score requirements
Most of the banks and financial institutions require a minimum credit score between 650 and 700 for approval of loan applications. Still, an ideal score is considered to be 750 or above. Borrowers with higher scores are generally considered for lower interest rate loans and more favourable terms than others. Given some lenders accept scores of around 685, still loans and credit products for such borrowers might come with strict loan conditions.
Note: These credit score ranges are indicative and may vary depending on the lender’s policies and risk assessment frameworks.
Other key factors for personal loan approval
Hence, apart from credit score lending institutions also keep a close eye on the borrower’s income stability, employment history, frequent job changes, debt to income ratio, past personal loan EMI defaults along with similar crucial financial facts about the borrower.
A firm and steady job history, sufficient monthly income and minimum existing debt boost the chances of personal loan and credit card approvals. On time payment of previous loans or credit card bills also enhances your credit profile and financial integrity.
How can you improve your credit score?
To maintain a strong credit profile:
- Ensure that you pay credit card bills and personal loan EMIs on time.
- Keep your credit utilisation ratio low i.e., under 30%.
- Avoid submitting multiple personal loan or credit card applications in a short span.
- Check your credit report on a consistent basis and correct any errors promptly.
Hence, by following these simple practices you can ensure that you increase and boost your personal loan approval chances. Such healthy credit practices also help you secure better deals and repayment terms.
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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
