It is not easy to get a loan approved and sometimes it all boils down to your credit report. Lenders and financial institutions consider your credit score to assess your loan application. This must make you wonder what is an ideal credit score. Additionally, you must be informed regarding the score for a personal loan, if you are applying for a personal loan.
In this article, we will discuss the best credit score for loans that would raise your creditworthiness regarding different loans including personal, business, and home loans.
The two broad categories of loans are secured loans and unsecured loans.
Secured loans are secured by property, gold or other valuable asset. Unsecured loans do not require any collateral as the lender evaluates your loan application based on your credit report and credit history. You will potentially incur higher interest rates with poor credit scores.
Shriram Finance offers multiple kinds of secured and unsecured loans. Some of the popular loans include business loans, personal loans, commercial vehicle loans, used car loans, two-wheeler loans, car loans, personal loans, etc. We provide both recurring and fixed deposit services. If you want to avail of a personal loan, educate yourself regarding important details including the required credit score for a loan. Check the details and apply here.
Ideal Credit Score When Applying for a Loan
At different stages of your life, you may need to apply for different loans like personal loans, business loans or home loans. All these loans will have a specific set of requirements in terms of credit scores for your loan to be approved. This brings us again to the question of what is an ideal credit score.
Generally, a credit score of 700 or above is an ideal credit score to apply for a loan. However, this is not a thumb rule for all lenders. Let us understand what is the ideal credit score for different types of loans available.
Ideal Credit Score for Personal Loans
A personal loan is an unsecured loan. It does not require you to use any form of collateral to secure it. Hence, the interest rates for such loans are generally a bit higher in comparison to secured loans.
Your credit score is essential to gauge your eligibility for a personal loan in India. When applying for a personal loan, 700-750 is a good credit score for a loan. If you have the ideal score for a personal loan, your application will likely be approved faster. You can also get a higher loan amount and better interest rates.
A credit score below the mentioned range can still get you some personal loan offers, but the interest rates may be too high.
Ideal Credit Score for Business Loans
In the case of a business loan, the ideal credit score for a loan should be around 600-700. Now you are aware of the minimum score before applying, you must note that the interest rates would depend on the credibility of your business and you as a borrower.
Loan approval depends on many factors beyond a high credit score. However, the higher your credit score, the greater your chances of getting a loan offer at favourable interest rates.
Ideal Credit Score for Home Loans
A home loan is always a secured form of loan. The minimum credit score required is around 550, and you can get a home loan approved. But the loan amount you get will be lower than what you had applied for.
If you apply for a home loan with a credit score of 700 or above, you can be assured of being offered the best interest rates, besides easy and quick loan approval.
Important factors to consider to improve credit score
The most efficient strategy to improve credit score is to use credit responsibly and for a long time.
Since you are always not sure of the time you would require to improve your credit score, you must consider all the necessary actions for improvement. Additionally, there can be delays in reporting which will further delay the changes to reflect on your credit report.
When applying for a personal loan, lenders consider various factors like your current income, age, and existing credit liabilities, besides the nature of your job. You must be aware that your credit report displays your credit score between 300 and 900.
You should have a score closer to 900 to get better deals on loans and credit cards. Generally, a high credit score of 750 and above is considered an ideal credit score for a loan.
Most lenders will reject the personal loan application if the credit score is less than 550. A low credit score indicates financial instability. It also shows you will find it difficult to repay the loan.
Many factors affect credit scores. Some of these factors include:
- Making timely payments toward credit cards
- Paying loan EMIs on time
- Ideal credit mix consisting of secured and unsecured loans
- Long credit history
- Correcting any inaccuracies on your credit report
Conclusion
Having an ideal credit score is important when applying for a loan. Different types of loans have different ideal credit score ranges. A good credit score increases your chances of getting a loan at favourable interest rates, besides quick approval.
It is always advisable to check your credit score before applying for any type of loan and take steps to improve it, if necessary. You must explore Shriram Finance's offerings to find the best credit solution for your needs. Besides loans, Shriram Finance offers investment options including recurring and fixed deposits. You may start your recurring deposit journey with us. Apply here.
Key Highlights
- An ideal credit score for personal loans ranges from 700-750, ensuring faster approval and better interest rates.
- Home loans consider 700 or above as the best credit score for loans to secure favourable terms and conditions.
- Business loans usually require a credit score of around 600-700, while interest rates depend on business credibility.
- Timely payments, responsible credit usage, and reducing outstanding debts can help improve your overall credit score.
FAQs
1. What is the ideal credit score for a loan?
The ideal credit score for a loan varies depending on the type of loan. Generally, a high credit score of 700 or above is considered the best credit score for a loan.
2. Is your credit score affected when you apply for a loan?
Yes, lenders and financial institutions consider your credit score when assessing your loan application. A high credit score increases your chances of loan approval and better interest rates.
3. What is a perfect credit score?
A perfect credit score is generally considered to be 850. However, even if your score is not perfect, you will get your loan approved with a good credit score for a loan, which is around 750.
4. How can I have a perfect credit score?
To have a perfect credit score, you must maintain a consistent history of responsible borrowing and repayment. This includes making timely payments, keeping your credit utilisation low, and avoiding defaults or late payments.
5. What is a fair credit score?
A fair credit score typically ranges from 580 to 669. While it may not qualify as an ideal score for the best loan offers, you may still be eligible for certain loans with fair credit.
