Your brother is getting married and you want some money to help with the marriage expenses. A personal loan seems the best bet but...you do not have a very good credit score. What can you do? Having a bad credit score can be a nightmare for individuals trying to apply for any kind of loan, and especially a personal loan. There is a high chance of rejection when you have bad credit.
Why is a credit score so important for a personal loan approval?
A personal loan is an unsecured loan - meaning it requires no collateral or guarantor. If you have a poor credit score/history, lenders know you are at high risk of defaulting and will not lend to you as they have no collateral to fall back on to recover their dues. With a home loan or auto loan, on the other hand, lenders can dispose of the home/vehicle in case of customer default.
It is very difficult to secure a personal loan with bad credit, primarily because it is an unsecured loan. Lending institutions majorly look at your credit history before making a decision, hence it becomes doubly important to have a good credit score.
Options if you have bad credit
Do you have a good income and stable employment? Then you might have a chance of being approved for a personal loan. In addition to credit history, lenders also look at other factors like your annual income. They might be willing to lend to you if you draw a good salary and seem like you will continue in employment at least until the tenure of the loan. A good, stable income reflects repayment capacity.
Be open to more unattractive terms on your loan: If you have a bad credit score, you might still be able to secure a loan, but it might come with harsher repayment terms and conditions. Since lenders want to safeguard their money against default from someone who has a poor credit history, they will offer a higher interest rate or smaller loan amount. If you do not have the time to improve your score and be eligible for better terms, then this is your best option.
Mistakes people make that affects their score
People don’t know the importance of a good credit score until they apply for a loan and get rejected. Following are some of the common reasons why you might have a bad credit score:
• Not paying EMIs or loan installments on time
• A consistent history of delayed credit card payments.
• Applying for credit ( loans or credit cards) with multiple lenders within a short period of time
• Getting close to or crossing your total credit limit
Try to improve your credit score to at least 700 and above in order for your loan application to be accepted. Any rejection will hurt your credit score even further.
Need some help?
If you want to apply for a personal loan and think your credit score might not be good enough, CreditMantri can guide you on how to improve your score in the most efficient and effective way so that your loan application is approved. You will also be matched with the most suitable loan offer.