Personal loans: How to improve your credit score? Here are 5 hidden ways
Need a loan for a medical emergency or to enjoy a vacation? Whatever your purpose, a personal loan can fulfil your needs. However, a personal loan is an unsecured loan; hence, you need to meet the eligibility criteria before getting it. Among other things, your credit score matters a lot for personal loans. Your credit score can determine your personal loan eligibility and the interest rate you will pay on it. So, let us understand what a credit score is, how it matters for personal loans, and how to improve it.
A credit score is a 3-digit numeric summary of an individual's credit history. It is an indicator of an individual's creditworthiness. A credit score is issued by RBI-registered credit bureaus such as TransUnion CIBIL, CRIF High Mark, Equifax, and Experian. For example, an individual's TransUnion CIBIL credit score ranges from 300 to 900.
Loans are of two types: secured and unsecured. A secured loan is backed up by a collateral or a security. For example, home loans, vehicle loans, gold loans, etc., are all secured loans as they are backed up by collateral. An unsecured loan doesn't have any collateral or security. Credit cards, personal loans, etc., are examples of unsecured loans.
As a personal loan is an unsecured loan, the bank or NBFC giving the loan relies mainly on the borrower's creditworthiness and ability to repay. This is where the credit score comes into the picture. The financial institution uses your credit score to understand your past credit behaviour and accordingly determine whether it should proceed ahead with your personal loan application.
Loan eligibility: Most banks or NBFCs consider a CIBIL credit score of 750 or higher healthy. Financial institutions may use a specified credit score as a
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