Over time, credit scores have become more and more significant in our financial lives. In addition to making it a top priority when assessing credit applications, lenders have started to base lending rates on the applicant’s credit score. Therefore, in today’s financial world, having a high credit score is equally important. Low equifax credit score, on the other hand, are more likely to be associated with reliable payment behaviour, which raises the likelihood that a credit application will be denied or approved at a higher interest rate.
Many people think they won’t be able to get a personal loan if they have a low credit score because personal loans are among the most popular loan options in both cities. That isn’t the case, though.
By applying the following useful tips, you can improve your chances of obtaining a personal loan even if your credit score turns out to be low or zero when you check free credit score:
Select a smaller loan amount.
Lenders consider your income and current debt repayment obligations in addition to your equifax credit score when determining your eligibility for a personal loan. The eligible loan amount is then determined using the loan applicant’s credit profile and the lender’s credit risk assessment. It is now more likely that a loan will be approved for borrowers with poor or no credit if the amount of the loan is less than the maximum amount for which they are eligible. This tends to lower the lender’s credit risk. This is due to the general perception that candidates with a poor credit history are less creditworthy. Therefore, if you apply for a smaller personal loan amount, you might be more qualified and have a better chance of getting approved.
Include one more applicant
Instead of simply rejecting an application, lenders who are unsure of an applicant’s ability to repay their debt frequently ask for a co-applicant or guarantor to increase the likelihood that the loan will be approved. Adding a co-applicant or guarantor with sufficient income and a good credit score can increase your chances of loan approval and may even improve your overall eligibility, while a low equifax credit score can negatively impact your chances of getting approved for a loan. Because the co-applicant or guarantor bears equal responsibility for loan repayment, lenders have an increased safety net when they approve loans. However, be advised that adding co-applicants or guarantors to your personal loan may negatively impact both of your credit scores. The impact will be visible when you check free credit score.
Accept a higher interest rate initially
Because it is becoming more and more necessary to be approved for a personal loan, credit score is now more than just an eligibility requirement. People with poor credit would normally pay higher interest rates on personal loans because it is a common practice for lenders to base loan rates on an applicant’s credit score. Even though loan applications with low credit scores are frequently rejected, it would still be preferable to pay a higher interest rate than to never have your loan application approved.
But before you accept a high-interest loan, think about comparing different loan offers based on your credit score, monthly income, and other qualifying requirements. Make sure that, after the new installment on your personal loan, your debt to income ratio stays between fifty and sixty percent of your income when making your monthly installment payments. To lower the total amount of interest paid, choose a longer tenure for lower EMIs and make an effort to prepay it.
Additionally, be sure to make timely repayments of your personal loan after it has been disbursed. This will raise your credit score over time. Moving your balance to a different lender that offers better terms and a lower interest rate is an option if your credit score has sufficiently improved. Since the balance transfer would be viewed as a new loan application by a new lender, be sure that the overall interest payout savings are significant and outweigh any associated expenses like processing and administrative fees before making this decision.
It makes sense to take the necessary corrective action to raise your credit score now that you are aware of the different ways you can still obtain a personal loan even if your credit score is low. There are several ways that raising your credit score can help your financial circumstances.
These ways will turn out helpful and you can see a uptick when you check free credit score the next time.
Paying loan EMIs and credit card bills on a regular basis
If you routinely miss credit card or loan EMI payments, your credit report will reflect these irregularities, which will lower your equifax credit score. Thus, never forget to make full and on-time credit card payments; additionally, never neglect to make an EMI payment or put off loan repayment. If you did this, you would progressively raise your credit score and increase your chances of obtaining a personal loan in the future.
Have a credit utilisation ratio of equal ot no more than 30%
Maintaining a credit utilisation ratio (CUR) of no more than 30% is one of the most important financial habits that credit card holders can follow to improve or maintain their credit score when applying for a personal loan. This shows you how much of your credit limit you actually use. When you surpass this limit, lenders typically view a credit utilisation ratio of greater than 30% as evidence of credit avarice, which is why credit bureaus reduce your credit score.
Possessing a wide variety of loans
Your credit score is largely determined by the credit mix, or the percentage of secured and unsecured debt, as reported by credit bureaus. Furthermore, credit bureaus give these borrowers higher credit scores because lenders tend to favour lending to borrowers with a higher percentage of secured loans in their credit mix—that is, loans secured by real estate, auto loans, and home loans.
When applying for a personal loan, you should think about refinancing unsecured loans with secured loans (loans against securities, gold loans, and top-up home loans for homeowners who already have a home loan) in order to maintain a healthy credit mix. However, those who want to raise their credit score more quickly should pay off any unsecured debt they may have, such as personal loans, credit card debt, and other debt. You will raise your credit score and add more secured loans to your portfolio by doing this.
