Low CIBIL Score

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A credit score is a measure of your creditworthiness which is presented in a numerical format. It ranges between 300-900, 300 being the lowest and 900 being the highest. You should always work towards maintaining a credit score closer to 900. Majority of banks and NBFCs consider a credit score of 750 and above as ideal.

How will a bad Credit Score impact you?

A bad or lower credit score may impact you in multiple ways since you’re viewed as a big risk by the mainstream lenders and this is not a good thing. Following are the demerits of having a low credit score:

  • Banks will most likely give you a loan at a higher rate of interest which means you will end up paying more than someone with a better credit score, say 750 or more. This is because banks and other financial institutions may view you as a risky customer and thus would like to recover their loan as soon as possible by levying heavy interest.
  • You will not be able to access premium credit card benefits. When your credit score is high, you are given good introductory and/or cashback offers. You may also get good deals on shopping and movie tickets. A bad score may make you miss out on all these.
  • You may have to pay a higher insurance premium. Nowadays, insurance companies check your credit score to see how reliable you are with timely payments. If you’re paying your credit bills and/or EMI payments on time, it will up your credit score. This will in turn make the insurance companies confident of your premium payments in time.

Reasons you have a low CIBIL score

  1. Credit Information Bureau of India Limited or CIBIL was formed in the year 2000 as a Credit Information Company (CIC). Now known as TransUnion CIBIL, this credit bureau collects and maintains the records of loans and credit card payments for individuals as well as businesses.
  2. The information regarding loans and credit card payments is provided by the member banks and other categories of lenders on a regular basis. CIBIL uses complex statistical formulas to arrive at the credit score which is known as the CIBIL score.
  3. Your CIBIL score is a 3-digit number that determines your creditworthiness as far as lenders are concerned. This score ranges between 300 and 900 and a score above 750 is considered a good score.
  4. The disadvantage of having a low CIBIL score is that your loan or credit card application may be outright rejected, you might have to wait longer than usual, there will be more paperwork involved, and you might end up paying a much higher rate of interest as well. In some instances, your application might be considered, if the lender chooses to do so.
  5. If your loan is disapproved, you will not be able to upgrade your standard of living. Your dreams for a home, car, children’s education will remain unfulfilled.

Why apply with Omozing?

  1. We get our customers the right personal loans for their needs.
  2. Easy and quick process of applying for funding.
  3. Our process is digital, saving you from wasting time and effort going from one lender to another. 
  4. We tell you upfront what documentation you will need to provide for the personal loan, and we collect all the documents in one go. 
  5. If you’re not eligible for a loan today, we’ll tell you why and what to do to become eligible in the future! 
  6. We have helped customers to get loans in 2 working days.
  7. Maximum loan amount approval.

How to get a Bad-Credit Personal loan?

Getting a personal loan with bad credit isn’t impossible, but it requires diligent research to find the most affordable loan possible. Here are a few steps to get a personal loan if you don’t have strong credit.

  1. Check your Credit Score: Learn where your credit stands by requesting a free credit report from com. You are entitled to one free credit report every year from each of the credit reporting agencies, though you can currently access weekly reports through April 2022.
  2. Ensure that you can repay the Loan: Evaluate your home budget to make sure that you can support an additional monthly loan payment.
  3. Compare Bad-Credit Personal Loans: If you have an existing relationship with a bank or credit union and your accounts are in good standing, it may have a personal loan option for you. You can also research personal loans for people with bad credit online, but make sure to read the fine print and independent reviews about the lender.
  4. Take advantage of Prequalification: Before you apply for a loan, many online lenders allow you to prequalify, or check whether or not you will qualify without doing a hard credit check. This is a good way to shop around for a bad credit loan without impacting your credit score further.
  5. Look into Secured Loans: Some lenders offer secured personal loans, which are often easier to get if you have below-average credit. These loans must be backed by an asset like your home or car, but they typically have lower APRs.
  6. Add a Co-Signer if necessary: Co-signers take on partial responsibility for the loan and may be required to repay the loan if they fall behind on payments. Adding a co-signer who has good credit could help you qualify and may net you lower interest rates.
  7. Gather Financial Documents: When applying for a loan, you’ll likely have to provide financial documents that include pay stubs, tax documents, and employment information. By gathering all of these documents in advance, you’ll speed up the process of acquiring your loan.
  8. Be prepared for a hard Credit check: While you can get prequalified from many lenders without initiating a hard credit check, the actual application will result in a credit inquiry. A hard credit check can temporarily damage your credit, though you should be able to recover the points lost once you begin making payments on the loan.

How to increase your chances to Secure a Bad Credit Loan

  • Prove that you can repay the EMIs – Despite your low credit score, lenders may offer you a loan if there has been an increase in your earnings. Hence, if you can communicate to the lender that your earnings have increased and you can afford to pay the EMIs, there are high chances of them offering you a loan.
  • Provide Collateral – Providing collateral increase your chances to secure a loan as the risk associated with lending to you decreases. Lenders feel confident to offer you a loan as in the case of defaults, they can sell/auction the collateral to recover the loan outstanding amount.
  • Apply with a Co-Applicant When you apply for a loan with a co-applicant who is creditworthy, your eligibility to secure a loan gets enhanced. So, when you have a low credit score and you wish to secure a bad credit loan, applying with a co-applicant is a good idea.

Side Effects of a Bad Credit Score

1. Problems in Getting Approval of Loans and Credit Cards

Individuals require money to meet their various financial needs and how do they get the money?

They can apply for Secured (Home Loan, Loan Against Property, etc.) or Unsecured (Personal Loan) to meet their needs. While getting any kind of loan, lenders ensure that they face minimum credit risk. In the case of secured loans, they have an individual’s assets as collateral. But in the case of unsecured loans, they have not any such thing. That’s why the role of a Credit Score becomes important here. Individuals with bad credit scores will face problems in getting approval of the personal loan and car loan.

Other than a personal loan and car loan, individuals also face problems in getting a credit card due to bad credit scores. Lenders always check the credit score of an individual before providing the credit card. In case a lender approves a credit card to an individual with a bad credit score, chances of getting a higher credit limit on their credit cards are quite low due to obvious reasons related to bad repayment behavior. Apart from this, lenders will not offer special schemes on credit cards to people with bad credit scores.

2. Higher Rate of Interest

While some lenders may outright reject your application, there may be a few lenders who may still offer to lend to you inspite of a bad credit score. To compensate for their increased risk in lending to you, they may agree to lend at a higher rate of interest. 

You may be under the impression that a percentage or two of a higher rate of interest does not matter much. You may be right if it is a very small amount of loan with shorter tenures. However, when you consider bigger loans like a car or home loans, a percentage or two higher also matters a lot. 

3. No Balance Transfer Facility or Top-up Loan Amount

A Balance Transfer facility helps those customers who are struggling with high-interest rates on their loans. This allows customers to transfer their outstanding principal balance to some other lender at a lower rate than the current one. But there’s a catch. Lenders do not provide this facility to people who have bad credit scores. Before permitting any borrower to transfer his or her outstanding balance, lenders check their credit score. Individuals who have bad credit scores (below 600) will surely face difficulty in availing of this facility. Lenders make sure that a borrower has been paying his or her EMIs on time until the time he or she wants to avail of the Balance Transfer facility.

Lenders offer low-interest rates on a balance transfer to people with a good credit score. But due to bad credit scores, lenders may not allow a Balance Transfer facility. Apart from this, people with bad credit scores may also miss the top-up loan amounts over and above the existing loan amount which can be a huge setback for you if you need some extra funds. On the other hand, creditworthy borrowers can easily opt for both Balance Transfer and Top-up facility on different kinds of loans at affordable rates.

4. Loans on Unfavorable Terms

While some lenders may agree to lend at a higher percentage of interest, some others may agree to lend, but at terms, that may not be favorable to you. These may end in different forms.

The approved loan amount may be much lower than what you actually applied for, which would again create unnecessary hassles for you in terms of arranging the rest of the amount. A shorter tenure may be approved. A short tenure with the same amount of loan would mean higher EMIs, which may prove to be a strain on your budget. Bigger down payment may also be demanded to approve your loan. 

On the other hand, you may be approved a Prepaid Credit Card or Credit Card against a Fixed Deposit, both of these may not solve your purpose of owning a credit card. While the above-mentioned effects are directly related to your bad score and your future credit prospects, there can be many more which may come across as side effects of a bad credit score

5. Lower Personal Loan amount Disbursal

When an individual has a bad credit score, a lender does not feel safe in lending the higher loan amount in the case of a personal loan. The reason is pretty simple. An individual with a bad credit score has a history of missed repayments and irresponsible credit behavior. A lender does not want to provide a loan amount to such individuals, that too without any security. As in the case of a personal loan, lenders have not any kind of asset on which they can fall back to recover their loan amount. That’s why people with bad credit scores usually get a lower loan amount as compared to individuals with a high score.

6. May Affect your Employment Prospects 

Though not in popular practice yet, increased numbers of employers are asking credit reports of candidates during job interviews.  This is especially true for sectors like financial services, insurance, telecom, and regulators like the SEBI or the IRDAI. 

A bad credit score often acts as a deterrent as the individual comes across as a financially undisciplined person.  It is also thought that a bad credit score means a debt trap and an individual may not be able to focus much on the job at hand due to debt resolution.

Though you may have genuine reasons for a bad credit score, it is better to be on the good side as you may not get a chance to give your explanation. 

7. Starting your own business may be difficult

These days, everyone looks at being an entrepreneur and starting a business on their own. However, as great an idea may be, it requires funds for execution. 

After bootstrapping, the first line of credit anyone looks for is from your existing banker. With a bad personal credit score, your existing banker may not like to take a risk on your venture. Approaching other sources of credit may prove more expensive for you.

The following factors are to be considered to improve your Credit Score

  • Make all overdue loan payments immediately.
  • All Loan and Bill payments are to be made on or before the due date.
  • Apply for a Personal or Home Loan if you need one and pay all EMIs regularly.
  • Monitor your credit score. It is available FREE once a year from Credit Bureaus likes CIBIL, Experian, CRIF etc.