Low credit score? Try these effective ways to secure a personal loan
18 December, 2024 | 12:12 IST
Struggling with a low credit score but in need of a personal loan? You’re not alone. While a credit score above 750 opens doors to the best loan offers, a less-than-ideal score doesn’t mean you can't avail credit facilities.
Whether it’s leveraging alternative lenders, improving your financial profile or tapping into the right type of loan, there are some options available. But first, let’s understand what exactly a credit score is, and why it should matter to you.
Simply put, your credit score is a three-digit number that helps lenders gauge how trustworthy you are when it comes to borrowing money. In India, credit scores are issued by one of four agencies – TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. Ranging from 300 to 900, your credit score reveals a lot about your financial habits — scores above 750 are considered excellent, while those under 600 can raise red flags.
Less than 600: A credit score below 600 is considered very bad, significantly diminishing your chances of getting a new loan.
600-649: Scores in the 600-649 range are seen as bad, and borrowers in this bracket face a low likelihood of securing loan approvals.
650-699: With a score between 650 and 699, you fall into the satisfactory category, and while not guaranteed, you stand a decent chance of securing new credits.
700-749: A score in the 700-749 range is considered good, and often preferred by the lenders.
Over 750: Scores above 750 are regarded as very good. This indicates a strong credit profit of the borrower, which lenders always prefer.
The credit score range and categorisation may vary with the credit bureau issuing the score.
Tips to secure a personal loan with low credit score
Securing a personal loan with a low credit score can feel like a daunting and uncertain process. But with the right approach, you can improve your chances of having your loan application approved. Here are a few ways to help you navigate this challenge:
Opt for a lower loan amount: If your credit score is on the lower side, consider reducing the loan amount you apply for. Lenders are more likely to approve smaller loan amounts, especially when a borrower has a poor credit history.
Demonstrate financial stability: One of the best ways to increase your approval chances is by showcasing your ability to repay the loan. Lenders are more likely to trust borrowers who can prove their financial reliability. Financial experts recommend providing proof of recent salary increases, additional income sources and stable employment records. Payslips, bank statements and tax returns can serve as strong evidence that you have the financial stability to repay the loan.
Add a co-applicant or guarantor: Including a co-applicant or a guarantor with a good credit score can boost your chances of securing a loan. A co-applicant with a strong credit history not only helps reassure the lender of the repayment ability but may also help you secure a more favourable interest rate.
Offer collateral: Though personal loans are typically unsecured, some lenders may offer the option to pledge collateral in exchange for a loan. If you have valuable assets such as property, jewellery or savings, providing collateral can increase the likelihood of loan approval.
While there are ways to help you secure a personal loan with a low credit score, the most effective solution in the long run is improving your credit score. A good credit score not only increases the likelihood of loan approval but also gives you the power to negotiate better terms.
Here are a few effective tips to boost your creditworthiness:
Review your credit report: Obtain a copy of your credit report from the credit rating agency and carefully review it for any errors or discrepancies. If you find mistakes, get them corrected promptly.
Clear debts on time: Timely payment of existing debts is one of the most important factors in building a strong credit history. Regularly paying off your current loans and credit card bills shows good creditworthiness, making lenders more confident in your ability to repay future loans.
Keep credit utilisation ratio low: Financial experts recommend keeping your credit utilisation ratio under 30% of your total credit limit. A lower credit utilisation ratio signals to lenders that you are managing credit responsibly, which could have a positive impact on your credit score.
Be careful with new credit: Opening too many new lines of credit in a short period can harm your credit score. Each credit inquiry can slightly lower your score, so it’s important to be judicious about applying for new credit. Avoid frequent credit inquiries and only apply for new credit when necessary.
In conclusion, improving your credit score is a gradual process that requires time, patience and disciplined financial habits. It’s crucial to understand that while getting a personal loan with a low credit score is possible, steadily working on enhancing your credit score will open doors to better financial opportunities in the future.
For those looking to navigate the complexities of obtaining a loan, digital platforms like Moneycontrol help users in accessing multiple loan offers. Through the Moneycontrol app and website you can access multiple personal loan offers from select lenders and apply for loans through a 100% paperless process. You can apply for a personal loan up to ₹15 lakhs through the Moneycontrol app and website, at interest rates starting at as low as 12% per annum.
Having a low credit score? Securing a personal loan is still possible. From choosing smaller amounts to adding a co-applicant, learn how to improve your chances of securing a personal loan.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.
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