​Have A Poor Credit Score? Here’s How You Can Manage to Get a Loan.

Poor Credit Score

We all must have heard the terms ‘good credit score’ and ‘poor credit score’ in advertisements, newspapers, and in articles linked with financial well-being. Have any idea what a good score indicates, i.e., what’s a good CIBIL score range, how this impacts your credibility, how to increase CIBIL score if it is poor and so on? 

Despite the rising awareness, many of you are not aware of the consequences linked with a poor credit score and often are unable to ameliorate it on time. Let’s discuss here in detail what’s a credit score, what it means, what is the distinction between poor and good scores and finally, how you can opt for a loan despite a poor credit score. 

What’s a credit score, and how is it computed?

To understand how a credit score affects a loan application, you must know how this parameter is computed. Your credit score, also called your CIBIL score, is computed by the CIBIL. CIBIL is the credit bureau that computes your credit score upon receiving details about your credit behaviour from lenders. A CIBIL score is basically a 3-digit number showing your credibility to the lender. Credit score ranges anywhere from 300 to 900, and a credit score of over 750 is looked upon as a good score. A good score enhances your chances of availing of a loan with zero hassles and approvals for a credit card, while a poor credit score of below 750 lowers your chances of availing of a credit option.  

There are 4 credit bureaus present in India that use distinct methodologies to compute your credit score. However, commonly, the inquiry and account section in the report is what assists in computing your credit score. Many parameters impact your computation for CIBIL scores, like your credit mix, credit history, loan duration, outstanding credit proceeds, credit utilization ratio and current credit behaviour. All such parameters are factored in a while computing your CIBIL score. Timely repayment of the loan EMIs and credit card dues ensures that you hold a clean credit record. A proper mix of unsecured and secured loan options ensures that you have the correct mix of credit, and a low credit utilization ratio (CUR), which assures a strong credit score. 

Also Read: How to Increase CIBIL Score

It is important to have a strong credit score, as most financial institutions decide your credibility based on these factors. A credit score endows financial institutions with an overview of your credit history and your potential to repay the debt on time. Thus, if you hold a strong credit score, your chances of availing of credit when required are surely higher. Likewise, another benefit is that few lending institutions even levy lower rates of interest to you if you hold a higher score. You can simply check your score directly through online lending tools or approach any of the credit bureaus. Note that to check your CIBIL score, you must approach the CIBIL bureau’s website. 

Credit score – range

As stated previously, a score of over 750 is looked upon as reasonably good by lenders and other lending institutions in India. A credit score with credit score lower than 750 is looked upon as poor, and thus the lending institutions too exercise caution while lending you a loan or credit card. The following breakdown can assist you in understanding what credit score is, i.e., the difference between good and bad. 

750 and 900 – A credit score from 750 to 900 is looked upon as an excellent score by financial institutions. With a credit score ranging from 750 to 900, you are most likely eligible for the lowest rate of interest while applying for the loan and may expect approval without much scrutiny or delay. 

700 – 749 – This is looked upon as a good by lenders. With a score between 700 and 749, you may be eligible for reasonable rates by only a handful of lenders while placing an application for a loan and may expect just minimal authentication. 

650 – 699 – This is looked upon as a fair score by most lenders. With a score of anywhere from 650 to 699, you are eligible for specific credit cards and loan deals. However, the credit options are limited, and you must expect increased application scrutiny. 

600 – 649 – All credit scores ranging from 600 to 649 are looked upon as average scores by lenders. While your application may be approved, expect a higher rate of interest with limited flexibility of loan. 

599 and below – This is looked upon as poor by lenders. With this score, the chances of witnessing loan approval are extremely less. In most scenarios, credit card and loan applications with such credit scores may be turned down. If your credit score falls in this range, you should instantly take vital steps to ameliorate your credit profile and score. 

The above credit scores are applicable for the CIBIL, and there are, in total, 4 credit bureaus, including CIBIL in India, which are authorized by RBI. If you are not aware of your score, you can get your score online from the official lending sites of these credit bureaus. Alternatively, you may even approach online lending platforms for monthly updates at zero cost. 

How to avail of a loan with a low credit score?

While individuals with a low score may face challenges while placing an application for a loan, there are certain options that they can exercise. These include – 

  • Opt for a joint personal loan with family or spouse – When you hold a low credit score, you can opt for a joint loan along with your family member holding a strong credit score. This improves your chances of loan approval. 
  • Avail a secured loan – In the case you do not qualify for the loan owing to a low credit score, you must choose a secured loan where you require presenting your security or collateral like gold, fixed deposit, land, etc., as collateral for the loan proceeds. 
  • Show a guarantor – Next way to get a personal loan disbursed despite a poor score is by showing a loan guarantor. The guarantor may be your friend or family member with a strong score. However, note that the guarantor will even be held accountable on the occasion you are unable to repay the loan EMI on time. 

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