As a personal loan being an unsecured loan, you are not required to provide any collateral to the lender for availing it. At the time of applying for a personal loan, or any other form of credit, a good credit score is a major requirement. It allows you to get attractive loan offers and a greater range of choices with respect to lenders. A bank credit score represents your credit history as recorded in your credit report. Lender through your score analyses how responsibly you are managing your expenses. Higher is credit score better are the chances of quick loan approval.

What good credit score gives you in terms of Personal loan?

•    Best deals on Loans and credit i.e. lowest fees and interest rates
•    Quick loan approval

Lenders usually charge more to borrowers with lower scores to offset their greater chances of loan default, and if an applicant's credit score is too low, might not even offer them credit at all. Any score above 700 falls under the category of a good credit score to apply for a personal loan.

Who are authorised to give you credit score?

When you get a credit score, it reflects the information available in your credit file at each of the three national credit bureaus i.e. Experian, TransUnion, and Equifax. As per the Fair Credit reporting act, you are accessible to get the best free credit report annually from each of these three national bureaus by sharing your PAN card details.

What factors are responsible for deciding whether your credit score is good or bad?

Payment History: If you are making a monthly debt payment on time and are consistent with your borrowing. Then you will have a good credit score. You need to avoid having a situation of missed payments as it will leave a negative impact on your score. Payment history accounts for 35% of your score.

Credit utilization ratio: It is calculated by dividing the total amount of your credit card balances by the sum of all your card borrowing limits. Creditors prefer utilization rates of no more than 30%, and higher utilization negatively affects your credit score. Longer is your credit history. Higher will be your credit score.

Credit mix:  For getting a good score, you are required to have a variety of credit accounts, such as car loans, credit cards, student loans, mortgages, and other credit products. Credit scoring models consider the types of accounts and how many of each you have as an indication of how well you manage a wide range of debts. The credit mix accounts for 10% at the time of calculating your credit score.

New Credit: It accounts for 10% when a credit score is determined. It is the way to check for how many new accounts you have applied for recently and when is the last time you opened a new account? At the time of applying for a new line of credit, lenders conduct a hard or hard pull, which is the process of checking your credit information during the underwriting procedure.  It is different from a soft inquiry, like retrieving your own credit information.

I hope the above information would help you in understanding why a credit score is needed to get quick personal loan approval and how you can achieve a good credit score. Online there are many platforms apart from credit bureaus, where you can download the best free credit report when you wished to.

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