Mr. Anirudh wants to apply for a home loan and his score is 670 but he is not sure if this score is low or Is acceptable for a loan?
Just like Anirudh you may also wonder what exactly qualifies as a low score and how does it impact you. Credit score is number ranging from 300 to 900, a higher score is considered to be better than a lower score. The most important use of credit rating is for loan approval and what is considered as a low score may vary as per the lender policies and also the type of loan. However the table alongside lists what is considered a low CIBIL score generally.
The most well known and common use of credit rating is for loan approval but there are some uses beyond loan approval too which we will discuss later.
Depending on which loan you are applying for applying for and also the lender policies acceptable credit rating level may also vary. Needles to say if your score is above 750 then regardless of which loan you want to apply for or which lender you wish to approach you would not have a problem. This level of score is considered to be excellent and getting a loan approved would not be a challenge regardless of which lender one approaches.
For those who have a score between 650 and 750 things could be slightly different. If one were looking for a home loan then most lenders are willing to lend to those who have a score above 640 and some may even sanction a loan if the score is lower than that. However if you were loan looking at an auto loan, business loan or a personal loan then generally a score of 700 and above is acceptable to lenders. Personal loans are unsecured so lenders will be unwilling to lend those who have a low credit rating as these applicants would considered to be high risk candidates. If your score is in this range you may have lower choice of lenders who may be willing to lend, you may not be able to get any special rates or fee waivers and the lender may take longer to sanction your loan or ask for certain additional documents.
Score of 550 to 650 is considered to be average and at this score level your choice of lenders is severely hampered. Few lenders, generally NBFCs and those outside the organized banking sectors may be willing to lend. You may get an auto loan or home loan at higher rates and lower LTV but getting a personal loan or business loan could seriously pose to be a challenge.
Anything below 550 as the table suggests is bad news. If you find yourself at this juncture then rather than applying for a loan you need to seriously start working on improving your credit score. This score level indicates high risk profile and it’s almost impossible to get a loan from an institutional lender. However if you do need fund for some exigency then it is better to approach friends and relatives or Peer to peer lending websites or borrow against your existing assets.
A low score impacts the chances of getting a new job too. However getting the applicant’s credit report as part of back ground check is still not very common in India so there cannot be a generalization about an acceptable score level for a job. What is considered a good score will depend on the policies of the company and the post that is being applied to.
Any score below 650 is an indication for the individual to seriously look at his/her debt position and also their credit habits. Depending on the reason or reasons for the low score you need to work on improving your score.
Apart from the above a low score could also impact your insurance premiums in future. Insurance companies in future might link your insurance premiums to your credit health as credit rating is an indication of risk profile of a customer.