Why is it essential to maintain a good credit score for getting various secured and unsecured loans?

Getting fast and simple access to quick funds in the form of loans is a boon. The loans help to meet urgent financial needs while making long-term investments like a home as well. In a nutshell, a loan helps to achieve a goal. Whether you need a personal loan to pay off medical bills or for a sudden tour, a business loan to fund working capital, or a home loan to buy a home – loans come with certain criteria and paperwork.

To become eligible for a loan with competitive interest rates and favorable terms and conditions, having a good credit score is of paramount importance. A credit score above 750 denotes appreciable financial health. It enhances the chance of getting the desired loan amount on easy terms.

Why does credit score matter?

A credit score is a number that portrays the creditworthiness of a borrower. It helps the lender to evaluate the application and judge if the borrower is worthy to get the loan. A credit score reflects a person’s credit history and assesses how responsible the person is in dealing with previous credit. The score is the summation of the borrower’s credibility which is judged by on-time repayment of the EMIs, credit inquiries, current debts, and credit utilization. A good credit score assures the lender that the borrower is financially in a stable condition and responsible disciplined in terms of credit. However, it is not the only criterion to qualify for a loan.

What are the ideal credit scores for different loans?

The credit score needed is different for different types of loans. Here is a brief discussion:

• Credit score for a personal loan – As it comes to a personal loan, credit score plays an important role since the loan is an unsecured one requiring zero collateral. Usually, you have to maintain a CIBIL score or credit score between 720 and 750 to become eligible for the loan. And the more is always better in this regard. A good credit score defines you as a creditworthy person. Peerless Finance will be likely to sanction your application fast while offering you the lowest possible interest rate. Since credit score is not the only term to qualify for a personal loan, you can still get a loan even if your score is between 600 and 700. However, in that case, terms and interest rates may change.
• Credit score for a home loan – Home loans are secured loans where your house is considered as the collateral. Therefore, you can get a home loan if your credit score is less than 750. Some lenders even consider 550 or more scores to be adequate for a home loan. However, a better credit score is always worth it. A higher score increases your chance of availing of lower interest rates and favorable loan terms. Moreover, with a lower credit score, you will be provided with a lower loan amount. If the score is low, you may get only 65% of the needed loan amount. So, make your score better before applying for a home loan.
• Credit score for a business loan – If you are applying for an unsecured business loan, you should maintain a credit score of around 700 and an annual turnover of 50 lacs and above. In the case of a business loan where you are applying for the money as an entity like a private limited or Partnership Company, the credit score of the business matters instead of your individual score.

Although you will get a loan even if your score is low, you should be aware of the matter that your credit score will be considered while sanctioning the loan. With a low score, you may have the chance of rejection.

Summary – Having a good credit score is needed to apply for any loan. For unsecured loans, a credit score between 720 and 750 is ideal.