A credit score is a very vital factor when it comes to approving a loan. It determines your repayment capacity and creditworthiness to lenders. A Credit score is a three-digit number that ranges from 300-900. It summarises your credit history, the amount of credit you have taken, how much you have repaid, and so on. It helps lenders to identify if your profile is risky or not. Thus, maintaining your credit score is a must. A score of above 700 is considered excellent by the lenders. Those people can get personal loans quickly with low-interest rates. But what can you do when your credit score is below 700? Is it possible for you to get an instant loan with a bad credit score? These questions will always make you worried. But here, you have a chance to rectify those mistakes and start afresh. Then you can see the opened doors for getting a personal loan.
Personal loans are unsecured loans that don’t need any collateral to submit. It is beneficial when you need money in a short time. You can use it for any purpose, such as higher education, weddings, medical bills, vacation, paying outstanding dues, etc. With a good credit score, you can get eligible for a loan with better benefits in interest rates and repayment tenure. But don’t worry if you have a low credit score. Still, you can manage to get a personal loan from a Bank or NBFC by following specific methods. You can check Buddy Loan, a loan aggregator where you can get a loan despite a low credit score.
Importance of Credit Score
Most financial institutions will check your credit score to examine your credit behaviour. Upon that, lenders decide whether to reject or approve your application for a loan. So a credit score matters a lot when applying for a loan. Checking your credit score will help you know if any errors or fraud are occurring in your account. You can also get to see if you have missed any payments. A credit score above 700 will provide you with a loan with various benefits, whereas a credit score below 600 might be a reason for your rejection of a loan. Some new-age banks and NBFCs provide loans to people with low credit scores. But chances for higher interest rates are also there. You can enjoy various benefits if you have a good credit score.
- You will get the best interest rates for your loan.
- Your loan or credit card will be approved soon.
- You can negotiate with the lender for better benefits.
- The chances of getting a higher amount of loans are more elevated.
- You can quickly get pre-approved loans from banks.
- You can select your payment tenure as long as you want.
Factors That Affect Credit Scores
- Obtaining multiple unsecured loans
- Delay in payment history
- The high credit utilisation ratio
- Multiple loan rejections in a short period
- More hard inquiries
- Paying less amount than required and closing the loan
Also Read: Know The Different Types Of Credit Score
Tips for getting an Instant Loan With a Low Credit Score
Getting an instant loan with a credit score below 600 is difficult but not impossible. By following these steps, you can easily avail a loan.
- Apply with NBFCs -: Generally, NBFCs have moderate policies when applying for a loan with a low credit score. You can research and compare them and choose the one that suits you.
- Provide income proof -: If you show proof of your income to lenders, they can consider you capable of repaying your loan. Lenders may provide a loan without credit or a low credit score.
- Apply with a co-applicant -: You can add a co-applicant with a good credit score and an income to your application. Eventually, the approval chances for your loan will be higher as the co-applicant is equally responsible for repaying the loan.
- Apply for a low amount -: You can get approval for a low amount loan when your credit score is low.
- Apply to a bank that has tie-ups with your employer -: You can apply for a low credit score loan from the bank that has tie-ups with your employer. They will quickly approve your loan as they already have your income details.
- Improve your credit score -: You can try to improve your credit score if you have no hurry for a loan. Because improving your credit score needs time and dedication.
- Correct mistakes in your credit score -: Checking your credit score will help detect any missing payments. You can easily recognize any errors or fraudulent activities in your score. You can use Buddy Score to learn your credit score.
- Apply through online platforms -: Banks and NBFCs provide various mobile applications and websites for applying for online loans. But you have to proceed only after confirming the source’s reliability so that you can save yourself from any fraud activities.
- Request your lender to consider you with a NA or NH in your report -: A credit report with a NA or NH is a person with no credit history or credit score. You can ask your lender to consider you in this category. The lender might approve your loan with high-interest rates.
Steps to Improve Your Credit Score
Check credit score -:
You have to follow the practice of reviewing credit reports regularly. It will help you get awareness regarding your credit history. You can monitor if there are any missed payments or errors. Checking credit scores will help you rectify any incorrect details in your report. Buddy Score will help you to learn your credit score.
Make timely payments -:
Your payment history influences your credit score by upto 30%. Thus you have to focus on-time payments and not miss any dues. You can set a reminder for your monthly payments.
Maintain credit utilisation ratio -:
You must maintain your credit utilisation ratio below 30%. It shows how much credit you have used from your credit limit. You can request your lender to increase your credit limit if you have difficulties.
Avoid multiple loans at a time -:
During necessity, you should avoid applying for loans with various lenders. Because a hard inquiry will follow each loan application, which eventually affects your credit score, so apply for one loan at a time to avoid any hard inquiries in the credit report.
Keep your old accounts open -:
Even if you are not using your old accounts, maintaining those accounts will increase the length of your credit history. Therefore, it gives more chances for you to display your consistent credit history to the lenders.
Applying for new credits -:
Getting new credits and paying them off on time will help you improve your credit score.
Pay off old debts and outstanding dues -:
Creditors will not look further into payments over “charged off” debts. So if you plan to pay on a charged off account, it will activate the account and the old debts. Thus it will affect your credit score badly.
Consolidate the debts -:
If you have piled up outstanding debts, you can get a loan to consolidate your debts. Instead of paying various debts, you can go with one debt. If you get a lower interest, you can pay off all other debts together. It will increase your credit utilisation ratio and credit score.
Diversify and alter your account -:
Your account should have a mix of credits such as credit cards, personal loans, mortgage loans, etc. When you pay these dues on time, then it will improve your credit score.
Thus, you can gradually improve your credit score by reviewing your on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments and high outstanding credit card balances are major credit score detractors.
Many things may prevent you from getting a personal loan; if you have a low credit score, you may have found it challenging to get a simple loan. This article will help you tackle your low credit score and get a personal loan. If you haven’t managed to get your loan, it is essential to be persistent, as many lenders are willing to help. As long as you can show that you are making an excellent effort to pay back the loan, you should be able to get one. Till then, you can try to improve your credit score and credit behaviour. With a few changes to your financial picture, it will be easier for you to get approval for a personal loan.
What is the minimum credit score needed for loan eligibility?
The minimum credit score for loan eligibility should be above 700.
How to get a Personal loan with a low credit score?
You can get a personal loan with a low credit score by providing your income proof, getting a co-applicant with a good credit score, and rectifying errors in your credit report.
Is it possible to get a loan with a credit score of 650?
Yes, it’s possible to get a personal loan with a credit score of 650. But you might charge for high interests.