What credit score is considered poor and when it starts affecting loan approval

If you plan to apply for a loan in the near future, it is essential to have a strong credit score. Generally, a credit score above the level of 700 is believed to be good, which not only helps you secure a loan but also get it at a lower rate of interest.

Therefore, a credit score below 700 can be a significant obstacle in obtaining a personal loan. As your credit score continues to slide, the situation turns from bad to worse.

Remember that a score below 600 becomes a cause for concern for a prospective borrower. In other words, if your credit score falls below 600, it should set the alarm bells ringing.

However, the level of concern depends on two key factors: the type of loan and the category of lender, i.e., bank or an NBFC.

Credit score ranges and concerns

Leading credit bureaus such as CRIF High Mark, CIBIL, Experian, and Equifax provide credit scores to aspiring borrowers. These scores help lenders in analysing the repayment potential of personal loan applicants. The basic range, along with associated concerns, is discussed below:

Note: The credit score range discussed above is for illustrative purposes and may vary by lender.

Key concerns with low credit scores

Rates of interest: In case of a low credit score, banks tend to charge a higher rate of interest to offset risk.

Loan rejections: Banks can even reject loans, and it becomes hard to get approved for credit cards, mortgages, or personal loans.

Lower credit limits: Banks may offer lower borrowing limits to applicants with low credit scores.

Stricter loan terms: Banks may ask for more paperwork and higher down payments, or even collateral from the applicants who have a poor credit score.

If your score is below 670, it’s worth improving it before you start applying for loans.

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