Before approving you for a personal loan, a lender will look at your credit history. Because of this, getting one may be challenging if your CIBIL score is low. However, despite having a low CIBIL score, you can still apply for and receive a personal loan by following the below steps.
A personal loan might come in handy when money is needed quickly. This could be while you are still working on your personal finances. However, the lender will do several checks before finally approving the loan. The personal loan eligibility checker will help you estimate how much of a personal loan you might be approved for.
Your credit history and CIBIL score will be among the first criteria evaluated. But how high should one’s CIBIL rating be? Finally, is it true that borrowers with a poor CIBIL score have no access to a personal loan? Loan approval is a challenging process in and of itself. Despite the reduced complexity of the loan application process, traditional financial institutions are still quite conservative when handing out loans. The danger of default increases for the lender in the event of unsecured loans. If getting a loan accepted is tough for someone with a high credit score, imagine how difficult it is for those with a low score. Obtaining a personal loan with a low CIBIL score may be more challenging, but it is still possible with time and effort.
First, we need to define “CIBIL score” and discuss how it affects your ability to obtain a personal loan.
CIBIL Score and its Importance
Your creditworthiness is reflected in your CIBIL score. One of the credit bureaus allowed by the Reserve Bank of India (RBI) to determine a person’s score is the Credit Information Bureau (India) Ltd. or CIBIL.
A genuine CIBIL score is a three-digit number between 300 and 900; the higher the number, the better the creditworthiness. The likelihood of having your application for a personal loan accepted increases as your score does.
Your CIBIL score determines how well you have managed your current debts. Maintaining a high score requires prompt payment of all financial obligations. Moreover, it includes credit card balances, loan EMIs, and other bills. On the other hand, a lower score is the outcome of a loan repayment default. Loan applications from borrowers with negative CIBIL scores are more likely to be denied than from borrowers with positive scores.
If your CIBIL score is 750 or higher, you’re in excellent standing to be approved for a loan. On the other hand, if you apply for a personal loan and your CIBIL score is 550 or lower, the lender may reject your application or charge you a greater interest rate because you are a larger risk. This is because your ability to repay the loan is based on more than simply your credit score; the lender will look at other criteria, such as your current financial situation and employment prospects.
Personal loan options for those with bad credit scores and no guarantor
Following the steps below will help you secure a personal loan even if you have a low credit score.
- Provide proof of income sufficient to cover loan payments.
There are ways to improve your credit score, such as increasing your pay or finding another source of money. Having proof of a stable job and income also improves your chances of securing a loan. However, note that you might have to pay a greater interest rate.
- You should think about applying for a small personal loan.
If you have a poor CIBIL score yet are applying for a large personal loan, the lender may see you as too risky. A lender’s risk of not getting repaid is increased because of this.
Lenders may be more receptive to a personal loan request with a lower amount. Also, it’ll be much less of a hassle to make payments on a smaller balance.
- Clear Up Inaccuracies in Your Credit Report
If your CIBIL score is low, obtaining a personal loan could be challenging. May report inaccuracies or incorrect information about you on your credit report. The most common cause of this is that your file hasn’t been updated to reflect the most recent details about you.
Even if it’s not your fault, misunderstandings like these might lead to complications. Stay one step ahead of the problem by checking your CIBIL score frequently. If you discover an inaccuracy, you must communicate this to the proper authorities so they may address it immediately. Also, it will help you out by improving your credit rating, which will make you a more attractive mortgage lender.
- Ask the lender to look past the NA or NH on your credit report.
A NA or NH indicates a credit period that has been inactive within the last 36 months or the lack of a credit period within that time frame. A CIBIL report without a credit score means you have no credit. Talk to the lender you’re interested in working with and explain the circumstances behind your credit card dormancy. The loan might get approved but with a higher interest rate than expected.
Mistakes people make affect their credit scores.
The value of a high credit score is sometimes not appreciated until one applies for a loan and is denied. Some of the most typical explanations for a poor credit score are as follows:
- Defaulting on loan or EMI payments
- Regular instances of paying late fees and interest on credit cards.
- Quickly filling out applications for various forms of credit (loans, credit cards) from various institutions
- Limiting or exceeding your available credit
If you want a loan, your credit score must be above 700. Your credit score will take another hit if your application is denied.
Here are five strategies for improving your credit score.
- It all starts RIGHT NOW with your commitment to paying your bills in full and on time. Up to 30% of your credit score is based on how reliably you make payments. That’s why, even if you’ve had defaults in the past, you must start maintaining an impeccable repayment record right away. A credit score can benefit immediately by on-time, complete payment.
- Check your credit report for any inaccuracies so you can fix them. Due to clerical mistakes, a debt you have paid off in full may still be listed as outstanding. This kind of mistake might bring your grade down without reason. On the other hand, an instant improvement in your credit score may result from filing a dispute and correcting these mistakes.
- Don’t spend more than half of your available credit each month; if your credit limit is Rs. 1 lakh, for example, don’t spend more than Rs. 50000. Spending more than that may be seen as a lack of financial discipline and will cause a reduction in your score. On the other hand, maintaining usage below 50% of your available credit has enhanced credit scores almost instantly.
- Do not apply for many loans or credit cards in a short period. Many assume they’ll have better luck getting a loan if they apply to multiple lenders or for multiple types of loans (home, vehicle, and personal) with just one or two. In addition, when you apply for credit, potential creditors research your application. Multiple inquiries in a short period will lower your credit score because it indicates that you are “hungry” for credit.
- If your credit score is low, don’t bother applying for any credit. Your credit score will drop with each loan application that is declined. So don’t consider applying for one until you know you have a high credit score and can repay a loan. It can thereby avoid credit score lowering loan rejections.