A credit score or a CIBIL score is a crucial factor that determines an individual's creditworthiness. Lenders first check your credit score when you apply for personal loans. When you apply for a personal loan for any expenses or paying off a larger debt, the lender sanctions the loan mainly based on your CIBIL score. Credit score ranges between 300-900, and a score between 300 to 600 is considered low and insufficient to meet the eligibility for a personal loan. However, you can improve your chances of securing low-credit score loans by following certain tips.
CIBIL stands for Credit Information Bureau India Limited and is an agency authorized by the RBI that calculates an individual's credit score. A CIBIL score or a credit score measures an individual's creditworthiness. An individual credit score mainly depends upon his credit exposure, payment history, loan duration and credit type. Low exposure to credit and timely loan repayment can result in a high credit score, while loan repayment default can bring down the credit score.
A valid CIBIL score ranges between 300 and 900. A credit score greater than 750 is considered high, while one below 500 is less and not ideal for procuring a loan. An individual with a high credit score can easily avail of a personal loan when compared to one with a low credit score. Lending institutions may not sanction the loan for such individuals or keep the interest rate very high.
Most lending institutions look for a CIBIL score of over 750 to approve a personal loan application. In some cases, they may approve the loan request with a low CIBIL score if the borrower meets certain other eligibility requirements.
A CIBIL score measures an individual's creditworthiness, and lenders may reject the loan sanction if the score is less. A low CIBIL or credit score can impact personal loan sanctioning in the following ways:
Several factors impact your CIBIL score, such as:
Repayment Record
Repayment history indicates the number of existing and past loans and credit cards you have repaid. If you have defaulted on any payment, your credit score is likely to reduce.
Credit use
Credit usage is a key determinant of your credit score. If your spending habits lean towards the upper credit card limit, it can negatively impact your credit score. You will be considered an irresponsible spender who does not plan his finances.
Number of loan applications
Applying for loans a lot many times also can affect your CIBIL score adversely. There will be an enquiry and a reduced score with every application. If your personal loan application is constantly rejected, you may apply for the same loan in another bank. But this habit can pull down your credit score as these rejections will appear in the information requested by the lender before sanctioning the loan.
Credit mix
Credit mix indicates all types of credit you have availed of both currently and in the past. Your credit score is likely to take a hit if you have too many unsecured loans.
Credit history
The amount of time you have been using credit to pay off loans and other debts is your credit history. Your score will be high if you have a long credit history with a timely repayment record. On the other hand, if you have less credit history and a timely repayment record, your credit score will be good.
While not meeting your credit card deadlines may have a negative impact on your score, you cannot avoid credit cards altogether as well. The absence of a credit card indicates no credit history, which makes your credit score nil, and you may also be rejected for a personal loan application.
You can improve your low credit score in various ways:
A CIBIL score is helpful in loan acquisition in the following ways:
Although challenging, you can obtain a personal loan with a low credit score by following the steps below:
Evidence of Income
Although you may currently have a low credit score, a possible salary hike or additional income source can make the lender favour your loan application. If you show evidence of a secure job with a steady income, the chances of your loan being approved are higher.
Apply for a lower loan amount
If you apply for a higher amount of loan with a low CIBIL score, the lender may consider you a high-risk candidate as there is more possibility of a payment default. If the personal loan amount is less, there is a higher possibility of the lender sanctioning the request, and repayment also will become faster.
Get a Co-applicant
If you have a low CIBIL score, getting a guarantor or a co-applicant with a decent credit score can help with the quick approval of your personal loan.
Rectify your credit report
Your personal loan application can be rejected due to a poor CIBIL score, but there are chances of errors and misreporting on your credit report. This mostly happens because your records may not be updated with the latest information. You must find errors and resolve them to work past this issue. An accurate credit report can make you a worthy candidate for quick loan approval.
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NA or NH in the Credit report
A NA or NH in the credit report indicates credit inactivity in the past 3 years and translates into your not having a credit score in the report. Explain to your lender the reason for inactivity, which can get them to approve your loan, though at a higher interest rate.
The benefits of availing of low credit score loans are:
The documents needed to apply for low credit score loans are:
While obtaining a personal loan with a 300 credit score may be difficult, it is not impossible. Some lenders may be willing to negotiate certain terms to approve the loan, or you can try different approaches like negotiating with the current lender, taking a loan against gold, borrowing against a deposit, etc. Ensure that the loan does not wipe you out financially, and you will be able to repay it on time. You must only approach trusted and reliable lenders for your low credit score loan and complete all the official documentation needed.
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