Effect of CIBIL Score on Interest rate

How Does the CIBIL Score Affect Your Personal Loan Interest Rates?

March 20, 2022 • 4052 views
Author: PoonawallaFincorp Category: CIBIL Score

If you have a CIBIL score of 750 and above, the chances of getting a loan at an attractive interest rate are higher. The CIBIL credit score is usually a value between 300 and 900. Lenders view high scores positively, and it is easier for your loan application to be approved if you have a high score.

With a good credit rating, you can get a loan at a relatively lower interest rate and with the appropriate loan terms. Banks will treat you as a borrower who can manage his/her finances properly. High credit scores mean lower chances of defaulting on loans and less chances on missing EMI.

CIBIL Score is an important factor that lenders consider when giving you a loan. Having a high CIBIL score not only makes you eligible for a loan but also helps you earn a lower interest rate. CIBIL Score is a numerical representation of your debt repayment ability. It is compiled by the TransUnion CIBIL (The Credit Information Bureau Limited) after considering your past payments, credit history, current and old credit accounts, among others. The interest rate is one of the most important factors a borrower considers when getting a loan.

CIBIL score falls in the range of 300-900. Most lenders consider CIBIL points of 750 or more as eligible. If you want to get a loan easily, your CIBIL score should be close to 900. Lenders such as banks and non-bank financing companies (NBFCs) prefer to lend to people with high credit scores.

The need for funding can arise at any time for different purposes. One might want to buy a home or a car or a smartphone that has just been introduced to the market. For different types of needs, there are different types of personal loan products availablethat people can choose from, such as Personal Loans, Mortgage Loans, Car Loans, etc. But there is one thing that is considered most important when choosing a loan - Credit Score.

Before granting any type of loan, and especially unsecured loans, lenders take a close look at your credit score. Based on your score, they can decide whether the borrower can repay the loan without any difficulty. If the score is high, the borrower may negotiate for a lower interest rate. Therefore, your credit score plays a major role in determining your eligibility and interest rates.

The Importance of Credit Score on Personal Loan

One of the most popular types of loans for borrowers is Personal Loan as it helps them meet their short-term and long-term financial needs. One can get the required amount of loan without any security against it. The definition of a good credit score varies from lender to lender. Generally, a credit score of 700 or more is considered good by lenders. Having a score above 750 points implies that the lender faces a lower credit risk compared to borrowers with low credit scores. With high credit score, the lender takes lesser time to approve your loan application. The final loan amount will be based on your income and your ability to repay.A personal loan is a type of unsecured loan that does not require you to bring any collateral on top of the loan amount. Personal loan interest rates are very competitive today, and this makes them an excellent solution for managing financial needs.

The type of loan does not make much difference to credit bureaus. If you repay the loan on time, the credit history will improve. Availing of a Personal Loan is considered to be a better solution than using your credit card debt. This is because the rate of interest for a Personal Loan is almost always lower than the rate applicable to a credit card loan. Other factors such as the length of the credit history and the overall mix of credit also affect your credit score. Having a well-diversified loan mix is better than having a credit profile leaning towards any one type of loan.

5 Steps to improve your CIBIL score.

 Make All Payments on Time

A major factor affecting your CIBIL score payments is delayed repayment. You should pay all your credit card bills and EMIs on time and avoid delays.

Keep Credit Utilization Low

According to experts, you should only use 15-30% of your credit card limit. Frequently using your credit limit to the fullest adversely affects credit score

Correct errors in your CIBIL report (if any)

If you notice a sudden drop in your CIBIL points, you should check your credit report, as there may be errors. Correcting errors in your CIBIL report early will help you improve your CIBIL score.

Increase the Credit Limit on Your Credit Card

One of the quickest ways to increase your CIBIL score is to ask your bank to increase the credit limit on your credit card. Once the credit limit is increased, you should keep credit usage low. This will boost your credit score as your credit utilization (actual borrowing vs maximum limit available on your credit card) goes down.

Do Not Close Old Credit Accounts

Long credit history will help you improve your CIBIL score. Therefore, if you have old credit cards with a good credit history, it is best not to close them. If you close your credit cards, you lose a good credit history, and this could affect your CIBIL score. It is recommended that you keep your credit cards in place as long as you are able to keep healthy CIBIL points.

Apply for a personal loan and make sure you borrow responsibly, and if you repay it on time, the loan will only help your credit report.


The CIBIL score ranges from 300 to 900 and shows the creditworthiness of the borrower. A credit score of 700 is considered a good score while a score of 750 and above is considered excellent by lenders. If you have a high credit score, it is possible to get a loan approved faster with lower interest rates.

There are 5 ways in which you can improve your CIBIL score

  • Make your EMI payments on time.
  • Keep your credit utilisation low.
  • Make corrections in your CIBIL report (if any).
  • Increase your credit card limit.
  • Do not close your credit account.

These can help you maintain a good CIBIL score and get a loan at a competitive interest rate promptly.


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