The horizon of credit score’s role in our financial lives has been widening over the years. Not only is it amongst the first filters factored in by the lenders when evaluating credit applications, but lenders have also begun to base the lending rates on applicant’s credit score. Hence, having a good credit score is no less than a crucial financial asset today. Those possessing a low credit score, on the other hand, are depicted as financially disciplined in credit repayment, thus increasing the possibility of leading to either rejection of credit application or getting it approved at higher interest rates.
Given that availing Personal loan in Bangalore and a Personal loan in Chennai
is amongst the most popular loan options in both cities, many people tend to believe that having a low credit score is the end of the road for them in their pursuit to get a personal loan. But that’s not the reality.
Here are some useful tips to increase your chances of availing of a personal loan despite low or no credit score:
Opt for a lower loan amount
When assessing your loan eligibility criterion for a Personal loan in Chennai, apart from your credit score, lenders factor in your income and existing debt repayment obligations. Then depending on the lender’s credit risk assessment and credit profile of the loan applicant, the eligible loan amount is ascertained. Now, for those who have low or no credit score, availing a loan amount lower than their maximum eligible amount tends to lower the credit risk for the lender, hence increasing the chances of loan approval. This is because such applicants having weak credit profiles may often be perceived as less creditworthy. Therefore, availing of a relatively lower amount as a personal loan can boost both eligibility and approval chances.
Loop in a co-applicant
When personal loan lenders are unsure regarding an applicant’s loan repayment capacity, they often have the requirement of a co-applicant or guarantor to improve chances of loan approval instead of outrightly rejecting the application for a Personal loan in Bangalore. As a low credit score can harm your loan approval chances, adding a co-applicant or guarantor with both sufficient incomes as well as a strong credit score can give an uptick to the chances of personal loan approval and may even enhance the overall loan eligibility. Given that the co-applicant or guarantor becomes equally liable for its repayment, the lender’s safety net gets broadened, enabling them to approve that loan. But, when looping in a co-applicant or guarantor to the personal loan, remember that any form of irregularity in loan repayment can adversely impact the credit scores of him/her, apart from damaging yours too.
Approach NBFCs and fintech if denied by banks
In comparison to banks in India, financial institutions such as fintech & NBFCs usually have relatively less stringent evaluation parameters pertaining to applications for Personal loan in Bangalore, which often opens the doors of loan approval for those rejected by banks. Personal loan aspirants with lower credit scores can therefore approach them upon facing rejection from banks, as the chances of a Personal loan in Chennai‘s approval from NBFCs might be higher than that of banks. However, while doing so, remember that NBFCs/Fintechs usually charge higher interest rates than banks.
Settle for a higher interest rate initially
With credit score’s significance and importance rising for getting approval for a Personal loan in Bangalore, its role is no more limited to being an eligibility parameter. Lenders have been taking on the practice of linking their personal loan rates with the credit score of a loan applicant, implying that those with a low credit score would be required to pay a higher interest rate on their personal loans. Since a poor credit score more often leads to personal loan lenders rejecting the personal loan application, paying a higher interest rate would still be a better option than having multiple rejections.
However, before you settle for a high-interest rate loan, consider comparing amongst various loan offers based upon parameters such as credit score, monthly income and another eligibility criterion. While finalizing the personal loan’s EMI, make sure your debt to income ratio, including the new EMI, does not cross 50-60%. Consider opting for a longer tenure for lower EMIs, and try to prepay it to reduce the overall interest payout.
Additionally, once your Personal loan in Chennai is disbursed, make sure you repay it in a disciplined manner since this would gradually improve your credit score. Once your credit score becomes stronger and reaches a good enough level, you can opt for balance transfer and shift to another lender that offering lower interest rates and better service terms. While taking this decision, make sure the overall saving in interest payout is substantial and outweighs the associated costs such as processing fees and administrative charges since the balance transfer would be considered a fresh loan application by the new lender.
Now that you know the various ways to help you avail of a Personal loan in Bangalore despite a low credit score, it would be prudent to also take the required corrective measures to improve your credit score. An enhanced or improved credit history or credit score will go a long way in benefiting your financial health in multiple ways-
-Regular payment of credit card bills and loan EMIs
Whenever you miss or delay your credit card bill or loan EMI repayment, such irregularity gets captured in your credit report, which pulls down your credit score as well. Hence, make sure to never delay or miss repayment of your loan EMIs and repay your credit card bills timely and in full. Doing so would gradually help in building or improving your credit score, which would, in turn, boost chances of getting approval for a Personal loan in Chennai in future.
-Contain your credit utilization ratio within 30%
When availing Personal loan in Bangalore, one of the crucial money habits for credit card users to maintain or improve credit scores is to restrict their CUR within 30%. Credit Utilization Ratio or CUR means the ratio of your total credit card limit utilized by you. As lenders usually consider a credit utilization ratio of over 30% as a sign of desperation or credit hungriness, credit bureaus reduce the credit score by breaching this mark.
In case you tend to breach this mark frequently, request your credit card issuer to enhance or increase your credit limit or get an additional credit card, as doing so would enhance your total credit limit and bring down your credit utilization ratio.
-Having a balanced credit mix
Credit bureaus also consider your credit mix,i.e. proportion of secured and unsecured debt, as a vital parameter while calculating your credit score. Since lenders generally prefer lending to those who have a higher proportion of secured loans in their credit mixes, such as home loans, car loans and loans against property, credit bureaus score such borrowers favourably.
To maintain a healthy credit mix before submitting an application for a Personal loan in Bangalore and a Personal loan in Chennai, you can consider replacing unsecured loans with secured ones, such as a top-up home loan (in case of existing home loan borrowers), gold loan and loan against securities. Whereas those aiming to improve their credit score quicker can prepay their unsecured loans like personal loans, loans against a credit card, etc., as doing so would increase the share of secured loans in their portfolio, thereby providing a boost to your credit score too.
