Taking a loan seems like an easy option if you have a large expense looming over your head. If only, you have been to a bank with a loan application. Multiple visits of bank, a huge list of documents, verification and attestations and lastly, the credit score – it gets exhausting and frustrating. Getting your loan application rejected on basis of a poor credit score or zero credit history is quite common when it comes to established banks and NBFCs (Non-Banking Financial Corporations, such as loan and insurance companies, co-operative banks, stock broking firms, etc.) Wondering what is a credit score? Read on to know and understand the concept of credit score, and how it affects your loan eligibility.



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Credit Score is a 3-digit number which decides your credit worthiness. In simpler terms, banks and NBFCs calculate the risk associated on providing a loan to a user on basis of his/her credit score – the credit score defines the ability of loan applicant to pay the loan back on time. The different credit score ranges and their grade are as follows –

Credit Score Ranges

Range Grade
0 or -1 No Credit History
550 – 300 Bad
551-649 Poor
650-699 Fair
700-749 Good
750 and above Excellent

Different countries have different credit score rating systems. Popular credit score systems in India include CIBIL and Equifax CRIF, which range from 300-900 and 300-850, respectively. In general, the higher your credit score is, the better chances you have of loan approvals. Banks and NBFCs reject loan applications if an applicant has zero or poor credit score. Anybody with a credit score of 750 or more has a high rate of loan approval.

A credit score of 0 or -1 signifies that the person has never taken a loan or used credit cards previously. Such loan applicants are considered ‘New to Credit’ and have ‘Zero Credit History’ and are by default denied a loan sanction by big financial establishments. This is a justifiable action on banks’ and NBFCs’ part, as they are not able to get any insight on the loan applicant’s ability to pay the loan back on time, and there is a certain level of risk associated to them by default. Do you also fall under the same category? Chances are you would be denied a loan if you don’t build or improve your credit score.

The two common methods of building and improving credit score is by taking a personal loan or using credit cards and paying their dues on time. However, credit cards charge a high interest rate and due to our tendency of swiping the credit card everywhere for all the purchases, people end up getting higher bills than expected. Moreover, the credit card companies and services send a monthly minimum payable bill, while giving you an option to clear off the entire credited amount. By general credit behaviour, most of us just pay the prominently placed monthly minimum payable bill, which leads to surcharge interest being levied on the remaining amount. And in case you miss out or delay on a single credit card bill payment, your credit score is negatively affected, making you a misfit for further loans in future.

Which is why, taking a short-term personal loan is always better against taking a loan against your credit card (or maxing out your credit card limit, however tempting it looks). With PaySense you can get a personal loan in a few clicks and the best part is that we serve people with zero credit history as well. Not only this, auto-debit of EMIs through NACH ensures that you don’t miss or delay the payments and decrease your credit score.

How a personal loan can help improve CIBIL Score?

To start building or repairing your CIBIL score, you can use a personal loan and pay all your EMIs on time. Such small personal loans are easier to pay and help improve your CIBIL score eventually and incrementally. This method of improving your CIBIL Score or any other credit score in small incremental values is also known as ‘Snowball Effect’.

For instance, if you have a salary of 15,000 INR per month and have never taken a loan or used a credit card previously, your credit score will be 0 or -1. That makes it very difficult for you to get a loan, since banks and NBFCs reject the loan application. However, PaySense can offer you an instant personal loan of Rs. 5,000 to Rs. 2,00,000; which you have to repay in a duration ranging from 3 months to 24 months. Let’s assume that you take a loan of 5,000 for 3 months and pay your EMIs regularly on time, your credit score will start increasing. After 3 or 4 such short-term instant personal loans which are easy and affordable to pay, your credit score will improve to 650 and above within a year.

A few precautions while taking a personal loan to improve your credit score –

  • Don’t apply for multiple loans simultaneously – Banks, NBFCs and online loan apps send a hard query to get your credit score every time you apply for a loan. With multiple hard enquiries for loans, you would come across as greedy for loan and it can impact your credit score negatively.
  • Choose your loan amount carefully – It is also advised to use only 30% of your available credit line or credit limit, i.e., the maximum amount of loan available to you, so that you can easily afford the EMIs without burdening your pocket.
  • Review your loan agreement properly – Whenever you take a loan, you should carefully read all the terms and conditions of the loan agreement, understand the fees, penalties and charges involved, etc. so that you can make a wise decision.
  • Pay your EMIs on time – As mentioned earlier, delayed or missed EMI payments can not only incur heavy penalty charges but also lower your credit score, making you unfit to apply for any other loan in future.
  • Don’t foreclose your loan – When you have extra money, foreclosing the loan seems like a tempting idea. But a loan foreclosure reflects in your detailed credit report and create negative impact on your long-term credit worthiness.

Lastly, if you choose sensibly, you can start building your credit score today with short-term personal loans and be loan-ready in future for bigger expenses and emergencies.