Banks and NBFCs determine the eligibility of personal loans primarily on the basis of an applicant’s income, credit score, job profile, employer’s profile and EMI affordability. While a loan applicant can do very little on the income, job and employer fronts, he can certainly take some steps on the credit score and EMI affordability fronts to improve his loan eligibility.

Here are some ways to increase one’s personal loan eligibility amid the Covid crisis:

1. Review your credit score

Those with credit scores of 750 and above usually have higher chances of a loan approval. Therefore, “reviewing one’s credit score before making a loan application will help the applicant in taking corrective steps to improve his credit score and thereby, his loan eligibility. Some of these steps include containing credit utilization ratio within 30%, maintaining a balanced credit mix, monitoring co-signed/guaranteed loans and timely repayment of EMIs and credit cards bills,” says Gaurav Aggarwal, Director & Head of Secured Loans, Paisabazaar.com.

2. Assess your EMI affordability

Most lenders prefer total EMIs, including the new EMI for a personal loan, to be under 50% of one’s net monthly income. Those exceeding this level have lower chances of loan approval. Hence, personal loan applicants should carefully choose their loan tenure on the basis of their ability to repay EMIs. A shorter tenure would have bigger EMIs and lower interest cost, whereas a longer tenure would have smaller EMI and higher interest cost.

3. Avoid multiple loan enquiries within a short span

Whenever an individual makes a loan application, the lender fetches his credit report from the credit bureaus to assess his creditworthiness. Such lender-initiated credit report requests are considered as hard enquiries, each of which gets listed in the credit report and reduces the credit score by a few points. Making multiple loan enquiries with multiple lenders within a short span can significantly reduce one’s credit score.

Instead, “loan applicants should visit online financial marketplaces to choose the most suitable lender after comparing various prospective lenders based on their loan amount and eligibility criteria like credit score, monthly income, job profile, etc. While these financial marketplaces would also fetch credit reports while providing the various loan offers, their credit report requests are treated as soft enquiries and do not impact applicants’ credit scores,” says Aggarwal.

4. Add a co-applicant

Those failing to avail a personal loan can consider adding a co-applicant or co-applicants to improve loan eligibility. Adding a co-applicant reduces the credit risk for the lender as the co-applicant too becomes equally liable for timely repayment of the loan.