Maintaining a healthy credit score is a boon if you plan to get a personal loan. Your credit score will help validate your creditworthiness for an easy and quick loan disbursal during such situations. While it accelerates the sanctioning process, it also offers options where you can pay low interests against your loan.
Every bank and the financial institution will evaluate your credit score before considering the personal loan application. Although a healthy credit score can help you get your application to go through, some methods can allow you to get financial aid despite struggling with the credit score.
What Do You Mean by Credit Score?
Every bank and financial institution uses credit score to measure up the creditworthiness of the loan applicant. The credit score, simple terms, helps them to gauge your repayment ability.
Hence if you are credit score is healthy, you are perceived to be capable enough of paying back the loan or the credit due in a smooth and timely fashion. The authorities will go through your past credit report to evaluate your payment tendencies against the outstanding debts like credit/ debit card bills and EMIs.
While maintaining a timely payment habit reflect positively on your credit score, any mention of delayed or failed to pay the dues will adversely affect as well.
Credit Score: Calculation
It’s important to mention that a credit score hovers in between 300 to 900 bracket, where the sweet spot is 750 – if you are over the threshold of 750, your score is in excellent condition.
Similarly, if your score is around 550 or under, it’s more likely that either your application will get rejected or you will be charged high-interest rates. Your chances for a personal loan are connected to the status of your credit score.
Tips for Getting a Loan Against Low Credit Score
People resort to options like financial loans and credit lines during emergencies where they lack the necessary resources to meet the requisite standards. A healthy credit score helps in granting the loan plea. But, those who don’t have a polished score can also avail personal loan by following a few things.
1. Provide Income Details
If you seek a personal installment loan, the lender will check your credit score to measure your repayment ability. And the chances are more significant than with less to no credit score; your application will be rejected.
You must provide your income details and any alternate income options to convince the lending party during such circumstances. If you have a stable job with promise for recurring salary hikes, your chances of getting that loan will increase, albeit in return of high-interest rate.
2. Apply For Low Personal Loan
More and more people during emergencies should consider applying for low personal loan amounts. Severely underrated, adapting to such approach will increase their probability of getting loan amount without any complication.
The main difference here is when you ask for a significant loan amount while holding a low credit score, your chances of repayment are bleak at best, which will prevent the bank. But with a soft loan amount, the risk is relatively less, and you can pay the due quickly as well.
3. Introduce a Guarantor
Another option that can aid your loan application could be to introduce a guarantor to the bank. If not you, your guarantor must have a flawless credit score to iron out the complexities on your behalf to get the loan amount. Getting a genuine guarantor with excellent credit scores often convinces the banker to grant a personal loan application.
A word of caution, the guarantor, will help you get the loan. You must keep hold of your end of the bargain and make timely payments, so that your guarantor doesn’t need to face any penalty on your account.
4. Go for Joint Loans
Taking the conversation forward, you can also try for joint loans if you struggle to achieve a personal loan due to your low credit score. Much like the guarantor, your co-applicant must have a healthy credit rating if not you, to make a viable case against the lender.
A joint loan will also allow you to share your co-applicant repayment expenses, thereby partly exempting you from financial burden.
5. Opt for Secured Loan
One specific loan type that has been widely used by the public who have had struggled with credit score previously is secured or mortgage loans. There are plenty of financial institutions and banks willing to offer loans for poor credit, despite the applicant having a low or no credit score.
The applicant will need to present substantial assets that could be measured up to be equivalent to the loan amount- the asset could be a real estate property, gold or even fixed deposits. If you have that kind of asset, you can make a case for your loan without necessarily bringing a credit score into the mix.
6. Rectify Errors
There are plenty of cases on record where the applicants had bad credit report at first. Their credit rating took a massive leap once it was sent back for review.
If you are paying your dues timely and maintaining your relationship with the bank in a diligent fashion, yet you have a low credit score, your details have not been updated in a while. It’s always essential to check the credit score at every interval to keep the details up to date.
While it always encouraged to maintain a healthy credit score, there are ways to manage if you are struggling with it. Being aware and making conscious choices to improve your credit score is a sure shot way to improve your chances of getting loans in the future. A healthy rating will help you get a loan or credit quickly and without much effort, making the entire process so much easier.
At the same time, a low rating will push you to consider the options listed above. Whatever you opt for, make sure you have complete knowledge and prepared enough to commit to the task. Furthermore, you must have enough funds for the subsequent repayment. Otherwise, you might have to face troubles.