Is your Personal Loan application stuck in eternity? Perhaps, it’s a case of low Credit Score. Here’s a quick read to help you find your way out.
In the world of Personal Loans, a bad Credit Score is an absolute deal breaker. A score that’s below 700 invites the lender’s scrutiny and has the potential to get your application rejected. For the uninitiated, a Credit Score is a three-digit number that verifies your creditworthiness. It is especially useful when you are looking for Credit Cards, Personal Loans, Car Loans and a bucket of other financial products.
Personal Loan Rejections
If you think getting a Personal Loan is a cakewalk, here is a wakeup call for you. Banks reject hundreds of applications every day and the reasons for rejections are aplenty. Personal Loans being an unsecured loan type demand an extra layer of verification because the banks need to be sure they are getting into business with the right people.
Additional Reading: 5 Essential Personal Loan Know-Hows
The one thing that keeps most applicants on their toes is the eligibility criteria. While your Credit Score plays an important role in determining your eligibility, do bear in mind, a high Credit Score is not the only criteria you need to fulfil. There are other factors like your income group, age, type of occupation and the duration of your employment that come into play when you are applying for a Personal Loan.
Additional Reading: Your Personal Loan Eligibility Checklist
Why Credit Score Is Important
A Credit Score is nothing but a three-digit number allotted by the credit bureaus based on your credit profile. A good credit profile is one that has zero debts and shows strong repayment capabilities. If you are not sure whether you have a good Credit Score, you can use this tool to figure it out.
Your Credit Score tells the banks all about your financial capabilities. Say, for instance, you need a Personal Loan of Rs. 1 lakh but you have a Credit Score of 550. The banks will hesitate to approve your application because your Credit Score casts a shadow on your ability to pay back the borrowed amount in the desired time frame.
Additional Reading: Understanding The Mechanics of Your Credit Score
Ways To Improve Your Credit Score
If you have a low Credit Score, the best you can do is work towards improving it. Check your credit report to spot the areas that require your attention and adopt a strategy to tackle them.
Dues and Credit Score are not the best of friends. The bigger your dues, the farther away you get from achieving a high Credit Score. Every time you miss a payment deadline, your Credit Score gets affected. Clear all your existing dues right away and make a fresh start.
Credit Utilisation Ratio
For those who use Credit Cards, the credit utilisation ratio is something that shows how much of the available credit is currently under use. Experts recommend using not more than 30% of the available credit limit. That way, you keep this ratio intact and your Credit Score free from harm’s way.
More often than not, a low Credit Score is a direct result of improper handling of credit. Control your urges to spend especially when you are doing it on borrowed money and instil a sense of financial discipline. Get rid of the excesses, take a relook at your spending habits, and monitor your day-to-day expenses to keep a check on your credit usage.
Can You Get A Personal Loan With A Low Credit Score?
Here is the tricky part. Although your chances of getting a Personal Loan are greatly minimised if you have a low Credit Score, here are some ways you can go about it.
Look For Alternatives
A Personal Loan is not the only loan type that you can look into. Since Personal Loans are unsecured, it makes it more difficult to avail one without a good Credit Score. You are more likely to get a secured loan even on a low Credit Score.
Explain Your Situation
If you can explain your situation to the lender and show reasonable evidence to prove why your Credit Score has taken a hit, your lender may allow you a Personal Loan based on your existing payment records.
Error In Credit Report
If you notice an error in your credit report, bring it to the attention of the authorities right away. Credit report errors are common and they normally get resolved within a matter of days if you file a complaint.
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