Applying For A Loan With A Poor Credit Score

Your credit score or CIBIL™ score is a 3-digit number between 300 – 900 is proving your creditworthiness to the lenders while they process your loan application. They are saying that a CIBIL™ Score of 750 is ideal if you want to get a good loan with an attractive interest rate and other benefits.

What is a Credit Score or a CIBIL™ Score? Why do lenders look into it?

A credit score or a CIBIL™ score is a 3-digit numeric value that expresses your credibility. It is determined based on your credit history, derived from data found in the 'Accounts' and 'Requests' parts of your CIBIL™ report. It generally ranges from 300 to 900. The closer your score is to 900, the higher the chances of your loan application being accepted.

There are 4 authorized credit bureaus in India; CIBIL™, Equifax, CRIF High Mark and Experian. An individual can get one free credit report in a year. You may choose any one of the 4 credit bureaus to request a credit report along with your credit score.

Click here to get your free credit health check from CreditMantri! It’s quick and instant!

So, what do I if my credit score is poor? Can’t I get a loan? Will my application be rejected?

Definitely not! Though a credit score of 750 is deemed healthy, an applicant with a credit score of 650 can also apply for a loan. So can an applicant with a 550 credit score.

Having a low score means that you are a risk for the lender. A healthy credit score translates into timely repayments from the borrower. A credit score is measured largely by how well you have repaid past loans, whether you have defaulted or pre-paid any loans, the types of loans you have taken, and how much of your income goes toward loan repayment.

So, you can for sure find some lenders who are willing to offer you loans but normally charge high-interest rates if you have a low credit score and badly need a loan. These lenders charge a very high interest of up to 30% to 40% per year.

Yes, it might be challenging for you with such a low credit score but it is not impossible. You can take a few simple steps to get things right before you go for the loan process.

Steps to Do Before Applying for a Loan with a Poor Credit Score

Show a stable income that can support EMI payments

You may have a poor credit rating, but a pay raise or an extra source of income can make your loan application more favourable for the loan. Furthermore, the chances of your loan being accepted will also increase if you can demonstrate that you have a stable job with constant earnings flow. Please notice that the rate of interest could be higher.

Many lenders include, along with your credit score, other considerations such as your current salary or revenue sources. You can always provide bank statements showing an increase in your pay, an annual bonus or other additional sources of income if you have a poor credit rating. This shows that you can repay your loan financially secure enough – so your approval rate is better.

Show proof of timely repayments on current liabilities

Your CIBIL™ score would depend on your current debts being repaid promptly. If your loan/EMI repayment has defaulted earlier, your credit score will be impacted. While applying for a new loan, ensure that all unpaid debts such as your credit cards, loan EMIs and utility bills include a record of payments. This will allow you to increase your credit rating and boost your chances of approval.

You can apply for a smaller loan amount

If your credit score is posing a problem for your desired loan amount, consider applying for a lower amount. If you apply for a high personal loan sum with low CIBIL™ scores, your lender will see you as a high-risk nominee. Your chance of defaulting on the loan payout is higher from the viewpoint of the lender. The lender will be inclined to award the request for the loan if the amount of the personal loan is lower. In addition, it would be much simpler to repay a lower amount.

Go for a secured loan 

Personal loans and credit cards are unsecured loans and hence have stringent eligibility criteria. Offer some kind of collateral or guarantee for your loan. This will assure the lender of your repayments and he will approve your loan quickly. You can pledge collaterals like gold, property, government bonds, etc.

You can also choose a co-applicant or a credit ratings guarantor to allow you to get the credit more quickly. Ensure that the formalities of KYC are completed with the requisite signatures on the required form through your co-applicant or guarantor. When your loan application receives a co-applicant or guarantor with a decent CIBIL™ mark, the lender will certainly agree to sweeten your loan deal.

Check for and repair errors in your Credit Report

With a low credit score, getting a loan can be difficult. However, there is a risk that your credit report includes mistakes or misreporting. This is most likely because your record hasn't been updated with the most recent details. A flawless credit report is difficult to achieve and much more difficult to preserve! However, it is important that you take the necessary measures to maintain a good credit score. You can only get the best credit, whether it's loans or credit cards if you have a decent credit score.

Your credit score is calculated based on a number of factors. It has a detrimental effect on your credit score if you are poor on even one criterion. There are, however, ways to correct your credit report if it contains any negative information. Check your credit score regularly and report any errors immediately to get them rectified. You can get in touch with CreditMantri for more assistance in this regard.

Additional Reading: How To Get A Loan With A Low Credit Score

Bottom Line

Despite the fact that we hear about long lists of eligibility requirements for loans and credit cards, your credit score is the most significant element in determining your eligibility. Although it is true that a low credit score suggests a borrower's poor creditworthiness and makes it difficult to secure a loan, there are certain ways to obtain a loan despite a low credit score.

Maintaining a good credit score necessitates disciplined credit management. While you won't be able to improve your credit score immediately, these measures will have a significant effect. A fair time period for restoring your credit score is 4-12 months. What you need is patience, determination, and self-control to achieve a high credit score.

Applying For A Loan With A Poor Credit Score FAQs