Neha Agarwal would like to apply for personal loans to remodel her home. She worries about her credit score, which could be higher and lead to the unique loan application being rejected. Is Neha right to be concerned regarding the quality of her rating? What is she able to do to get over this obstacle?
Read on to learn about the impact of a bad credit score on the personal loan application and the best ways to combat it.
What impact will my CIBIL(tm) score in my application for a personal loan?
A personal loan is convenient when you require money to cover the cost of an emergency or to cover other expenses. A personal loan to fund medical emergencies, pay for the wedding of your dreams, take an excursion, buy the latest mobile phone, renovate your house, or for various other reasons. There aren’t any restrictions on the final usage.
Additionally, personal loans are not secured and do not require you to put up any collateral for the loan. These factors make personal loans the preferred loan option for millions of people.
The problem is that to be eligible for an individual loan, you must prove to lenders that your finances are secure and that you’re likely to pay back the loan promptly. What are lenders’ criteria for evaluating this aspect? They base their decision on credit scores and the credit histories of a prospective applicant.
The primary factor a lender will consider when applying for personal loans includes your credit score. Credit scores are an arbitrary number that determines your creditworthiness. It is based on a summary of your history with credit, credit you’ve taken, repayment history, and other aspects.
- The credit score varies between 300 and 900. The higher it is 800, the greater your chances of getting personal credit approval.
- Authorized credit rating agencies supply credit scores and are sometimes referred to by credit bureaus.
- You can swiftly verify your credit score for free through our site. Enter your email address, mobile number, and PAN number to retrieve the most recent credit score.
“Most lenders require borrowers to have a credit score of 750+ to be considered for a personal loan with collateral.”
What causes an unsatisfactory CIBIL(tm) score to affect my loan prospects?
The lenders only approve loans to people who can repay the loan and are most likely to fail. The lender wants to make sure that you will be able to repay the loan. An unsatisfactory CIBIL(tm) score places you in the high-risk category.
Here are some reasons to consider why your low credit score can hinder the approval of your loan application:
- You are in a large amount of debt
- You’ve failed to pay back your credit card debts or previous debts
- If you have an excessive utilization of the credit ratio
- Credit is also an option often.
- Your credit mix needs to be balanced.
Your credit score may need to be higher due to these factors. Your past credit transactions are recorded in your credit report. Each of these points could signal the alarm of potential lenders. A low credit score places you in the high-risk group, which could lead to your application being declined. Even if you get approved, you could be required to pay a high rate of interest that could be more cost-effective.
Practical Tips to Obtain Personal Loans with a Low CIBIL(tm) Credit Score
Although finding the best lender can be a problem when you have a poor rating on your credit report, you could still get personal loans using the guidelines listed below:
#1: Show Proof of Stable Income
You may have a low credit score; however, when you are working a steady job that earns a decent amount or has a second source of income besides your primary income, the lender will likely accept your loan application.
Although you might be able to qualify, however, the lender will likely charge more interest. Therefore, improving your credit score before taking out a loan for your personal is strongly recommended to receive the best deal.
#2: Ask for a Small Loan Amount
Most lenders will deny your application If you are applying for an amount that is high in the loan market with a poor credit score. The reason is that the lender sees you as at a higher risk of default, and therefore they wish to avoid taking on a chance with a large amount.
However, when the loan amount is low, the lender might be more willing to give you the loan. Additionally, because the loan amount is less, the repayment can be made faster and reduces the risk of defaults on loans.
#3: Bring a Guarantor on Board
If you have a low credit report rating, having the Guarantor or co-applicant with high CIBIL(tm) scores could improve your chances of getting loan approval. This is because having a co-applicant or Guarantor lowers the risk taken on the loan by the bank, which means they’re more likely to accept the loan quicker.
#4: Scans your credit report for errors
Suppose you’re looking for why your credit score is lower even though you’re cautious about every credit transaction you make and transactions. In that case, errors or mistakes on your credit report could cause your scores to fall.
Most of the time, the mistakes on your credit file stem from incorrect information. You might have completed the repayment of a loan. However, it could appear unpaid on your credit reports. It is possible to eliminate these errors by obtaining a copy of your credit report’s most recent version and examining it for any errors. If you find any mistakes make sure you report them to the appropriate authorities and have the issue resolved.
#5: Ask your lender to reconsider If you have an N/NH on your credit report
You will likely not need a credit score if you’re brand new to credit. The credit bureau notes the score as N/NH. If there’s an active period in your credit file of more than 36 months, this will be recorded as NA/NH in your credit reports.
If this is the case, you may contact the lender and explain why you need a credit background. If the lender can accept the reason you presented, they will likely approve your loan request with a higher interest rate.
How do I get a personal loan if you have an unsatisfactory CIBIL(TM) rating?
The tips mentioned above will help you obtain an individual loan. You can boost your credit score if you repay your loan on time and establish a positive repayment track record.
In that regard, we strongly recommend improving your credit score before applying for an individual loan so that you can be eligible for the top personal loan deals. Additionally, selecting the right lender could make a huge difference. Examine the rates of interest and eligibility criteria and minimum credit score requirements at different lenders to secure the personal loan that’s best for you.
