Low credit score? 7 smart strategies to secure a loan
The credit score is among the primary factors that lenders evaluate when considering loan applications, such as personal loans or credit lines.
Credit scores are crucial in the loan approval process. A high credit score not only facilitates the swift disbursement of loans but also enables borrowers to secure loans at more favorable interest rates. While a low credit score typically reflects poor creditworthiness and complicates the loan acquisition process, there are strategies available for obtaining a loan even with a low credit score.
The credit score is among the primary factors that lenders evaluate when considering loan applications, such as personal loans or credit lines. A high credit score indicates a strong capacity for repayment, serving as a measure of an individual’s creditworthiness. A valid CIBIL score ranges from 300 to 900, with scores above 750 deemed excellent. The likelihood of approval for a personal loan increases with a higher score.
Nevertheless, what options are available if you possess a low or poor credit score and require a loan urgently? How can you secure a loan if you are new to credit and lack an established credit score? While it may be challenging, there are several steps you can take to get a loan despite having a low credit score:
1. Maintain Records of Timely Payments
Your CIBIL score is influenced by the punctual repayment of your existing financial obligations. If you have previously defaulted on any loan or EMI payments, your credit score will suffer. Before applying for a loan, ensure that you have a history of timely payments on all outstanding debts, including credit cards, loan EMIs, and utility bills. This practice will help you enhance your credit score and increase your chances of loan approval.
2. Provide Proof of Income
Most lenders typically assess various factors, including your current salary or income streams, in addition to your credit score. Even if your credit rating is low, you can still submit bank statements that reflect an increase in your salary, annual bonuses, or other supplementary income sources. This documentation serves to demonstrate your financial stability and ability to repay the loan punctually, thereby facilitating a quicker approval process.
3. Seek a Loan from NBFC
If you possess a low CIBIL score and require immediate credit, it is advisable to avoid applying for a loan from a traditional bank. Each loan application is scrutinized based on your credit report, which leads to hard inquiries. Multiple hard inquiries can adversely impact your credit score, and if your application is denied, it may further diminish your CIBIL score. Therefore, it is preferable to seek a loan from a non-banking financial company, as they generally have more lenient policies for individuals with lower credit scores. However, it is crucial to be aware that the interest rates charged by NBFCs are typically higher than those offered by banks.
4. Choose a Smaller Personal Loan Amount
A lender may perceive you as a high-risk borrower if you request a substantial loan amount while having a poor credit score. Opting for a smaller loan amount and making regular repayments can help you improve your credit score over time. This approach will build the lender’s confidence in your creditworthiness, allowing you to later apply for a larger loan. Additionally, repaying a smaller amount will be more manageable financially.
5. Consider a Joint Loan
If you possess a low CIBIL score or are inexperienced with credit, obtaining loan approval can be expedited by including a co-applicant or a guarantor. If the guarantor has a solid credit history and a high credit score, lenders are more likely to offer you favorable terms on the loan amount. It is crucial to obtain the necessary permissions and complete the required KYC procedures.
6. Pursue a Secured Loan
An alternative approach is to apply for a loan backed by collateral, such as gold or other valuable assets, including privately-owned property. There are several banks and financial institutions that readily provide loans to individuals with low credit scores, especially if they apply for a mortgage-backed loan. Lenders typically accept assets like property, gold, and fixed deposits as collateral for disbursing secured loans, even to those with a low CIBIL score.
7. Correct Inaccuracies in Your Credit Report
There are instances where errors or misreporting may occur in your credit report. It is advisable to review your CIBIL score every six months to ensure that such inaccuracies are addressed and that your credit report remains current.
Maintaining a healthy credit score often involves conducting essential checks on your repayment behaviors. By following these steps, you may secure a loan without allowing your credit score to hinder your options.