Personal Loan on Low Credit Score
When you apply for a personal loan, banks and lenders gauge your credit repayment capacity or creditworthiness by evaluating your credit score. Your credit score is a 3-digit rating between 300-900 that acts as a summary of your credit history, payment history, total credit availed, the average length of credit accounts held, and the mix of credit accounts held. Based on these factors, your credit score is calculated by credit bureaus and made available along with your credit report to the lender, on their request.
The above factors help a lender in determining the risk associated with extending funds to you. Generally, a credit score of 750 and above is considered healthy and helps in instant personal loan approval without much hassle. However, a credit score lower than that may translate to some problems as you attempt to avail a personal loan.
Although, a low credit score doesn’t mean outright rejection of personal loan application; you can still get a personal loan with low credit score if you deploy some of the measures outlined below:
How to Get a Personal Loan with Low Credit Score?
- Make Your Loan Application Stronger with Evidence of Adequate Income
If you’re applying for a personal loan despite of a low credit score, make sure that you declare your income from all the sources right in your loan application. If you’ve recently got a raise, have rental income, or additional income from other sources coming in frequently; do make a point to reveal this to the lender.
This helps lenders assess your loan application based on the income and your ability to repay the credit without much hassle. Basically, what lenders look for is whether your income is adequate to cover the debt repayment or not. if your lender is convinced that you’ve a steady job and a good income, you can get a personal loan despite of a low credit score. However, be prepared to shell out a higher rate of interest in such cases.
2. Apply for a Reduced Loan Amount
When you apply for a higher personal loan amount with a low credit score, lenders perceive you as a high-risk borrower that is hungry for credit. Lenders tend to see this situation as a potential loan default. While, on the other hand, if you apply for a lesser loan amount, you’re still likely to get approved for the personal loan since the lender will be willing to extend you a lower amount because of less risk involved in repayment.
3. Include a Co-applicant in Your Loan Application
Even if you’ve a low credit score but still want to get approved for the personal loan, you can do this simple hack. Have a co-applicant in your loan applicant whose credit score is healthy enough to get you a loan approval. Once the lender is satisfied looking at the co-applicant’s documents, is eligible for the personal loan, and has adequate income and a healthy credit score; the lender will have no qualms approving your personal loan application. This is one of the easiest ways to get a personal loan approval with a low credit score.
4. Fix errors in Your Credit Report
There are some chances when your credit report has some errors which are not in your knowledge and that can lead to the rejection of your personal loan application. Since we all know how important credit score is to get a personal loan approval, you should check your credit score before applying for a personal loan.
Doing that ensures that if there are any errors that are bringing your credit score down, you can fix them in advance to increase your chances of personal loan approval. It is important to check your credit score regularly to keep it error-free at all times and have a better chance of getting approved for a personal loan.
5. Request Lender in Case of Credit Inactivity
For those new to the world of credit and personal loans, there are cases when there is no credit activity at all in your credit report. In such cases, you can request your lender in such cases where there is no credit inactivity. There are chances when the lender would still be willing to extend you a personal loan but at a higher rate of interest.
Why is Credit Score So Important?
Your credit score is the single most potent indicator of your creditworthiness that helps lenders evaluate the risk quotient in lending you a personal loan. A good credit score is usually above the range of 750 which is deemed as healthy to get a hassle-free loan approval. Your credit score is important because it helps you get instant personal loan approvals while cutting down the waiting time.
Also, a high credit score is important to help you avail an instant personal loan at attractive interest rates. When you’ve a high credit score, lenders are willing to extend you pre-qualified personal loan offers at your favourable terms and conditions. This helps you get the best deals on personal loan interest rates and other offers.
How to Achieve a High Credit Score?
Since we’ve seen how important your credit score is, it’s critical to take necessary measures to improve and maintain a healthy credit score. Here are a few steps to improve and maintain your credit score:
- Be timely and consistent with the debt repayments.
- Never miss a single loan EMI or credit card payment.
- Always pay your dues in full.
- Never borrow more than required and keep your credit utilization ratio below 30%.
- Maintain a healthy mix of secured and unsecured debts in your credit profile.
- Keep scanning your credit report for any errors and fix them in time.
Though your credit score is an important part of your personal loan eligibility, it’s not the only deciding point. There are many more factors in play like: your income, amount of loan applied for, co-applicant, and so on.
In case of a low credit score, the best way to seek a personal loan is to approach the NBFCs as Clix Capital.Clix Capital offers instant personal loans to applicants with credit score not less than 725 at an affordable rate of interest and flexible repayment tenor. The eligibility criteria followed by NBFCs is quite flexible when compared to banks lading to a better shot at personal loan approval.
If you too have a low credit score (not less than 725) but are in urgent need of instant funds, apply for a personal loan from us now. Just help us with your basic KYC and income details and we’ll take it from there.